As 2025 draws to a close, the U.S. housing market appears to be settling into a phase of cautious optimism and gradual recovery. According to the latest forecasts from Zillow and other industry observers, the national housing landscape is characterized by slow but steady growth in home values, a slight uptick in sales activity, and easing—though still challenging—affordability conditions. While the market is far from the high-frenzy environment seen during the early pandemic years, it is also steering clear of any dramatic declines, signaling a period of stabilization as the country heads into 2026.
Home prices, which once soared at double-digit rates annually, are now climbing at a much slower pace. Zillow’s December 2025 report projects a 1.7% increase in existing home values as the market transitions into the new year. This modest gain reflects a broader cooling in the market, where demand and supply are gradually moving toward better alignment. The days of rapid bidding wars and unsustainable appreciation appear to be firmly behind us, replaced by a more measured and sustainable pace of growth.
Sales activity has also shown signs of modest improvement. For 2025, total existing home sales are expected to reach around 4.1 million units, up slightly from 2024. This increase, though relatively small, is notable given the persistent headwinds facing buyers throughout the year. Elevated mortgage rates, tight inventory, and economic uncertainty have continued to weigh on consumer confidence. Nevertheless, a gradual decline in borrowing costs during the second half of the year has helped coax some buyers back into the market. Mortgage rates, which had hovered above 7% in late 2024, have recently slipped into the low 6% range, offering a slight but meaningful boost to affordability.
Inventory levels have also improved, providing more options for buyers and easing some of the intense competition that defined earlier years. While inventory remains below historical averages, it has climbed steadily throughout 2025, especially in key metropolitan areas where new listings have outpaced home sales. This increase has contributed to slower price growth, longer time on market, and a rebalancing of power between buyers and sellers. In many cities, sellers are now more likely to offer concessions, adjust prices, or invest in home improvements to make their listings stand out.
Despite these positive signs, affordability remains a pressing issue. The combination of still-elevated home prices and higher mortgage rates continues to sideline many potential buyers, particularly first-time homeowners and lower-income households. A significant portion of current homeowners are locked into mortgage rates well below current market offerings, discouraging them from selling and further limiting inventory turnover. The so-called “lock-in effect” has emerged as one of the defining features of the post-pandemic housing market, creating a mismatch between existing homeowners who are reluctant to move and would-be buyers searching for opportunity.
Rental trends have also shifted in recent months. Analysts report a noticeable slowdown in rental price growth across both single-family and multifamily segments. After years of steep increases, rental markets are beginning to cool in many parts of the country. This trend is partly driven by a wave of new multifamily construction projects reaching completion, which has increased supply and relieved pressure in some urban markets. For renters, this offers some relief amid ongoing cost-of-living challenges, although rent levels remain significantly higher than they were just a few years ago.
Geographically, the housing market remains highly regional. In high-cost coastal markets like San Francisco, Los Angeles, and New York, price growth has been minimal or even negative in some quarters. In contrast, many Midwestern and Southern cities—such as Cincinnati, Indianapolis, and Raleigh—have experienced stronger demand thanks to their relative affordability, strong job growth, and livability factors. These trends underscore the uneven nature of the recovery and suggest that local dynamics will continue to shape the national picture in 2026.
Demographic shifts are also influencing housing demand in important ways. Millennials, now entering their prime home-buying years, remain a key driver of demand despite affordability challenges. At the same time, baby boomers continue to dominate the market in terms of home equity and sales volume, often purchasing with cash and less affected by borrowing costs. As Gen Z begins to enter the housing market in greater numbers, the industry may need to adjust to evolving preferences and economic realities, including greater interest in suburban living, remote work flexibility, and smaller household sizes.
Looking ahead, housing economists anticipate continued stability, albeit with caution. Most forecasts suggest that home price growth will remain in the low single digits in 2026, and that sales volume could inch higher if mortgage rates continue to fall. Policymakers and financial institutions will also play a role in shaping the market’s direction, particularly if efforts to expand affordable housing and first-time buyer assistance gain momentum.
In sum, the U.S. housing market in late 2025 is best described as measured and steady. While challenges remain—particularly around affordability and inventory constraints—the broader picture is one of normalization after years of extreme volatility. For buyers, it means more choices and less pressure. For sellers, it requires realistic pricing and flexibility. And for the industry as a whole, it signals a shift toward long-term balance rather than short-term boom or bust cycles.
