2025 Real Estate Market Trends to Watch Out For

The real estate market has been in a state of flux since 2021 when the pandemic unofficially came to an end and the economy took its first steps toward normalcy. Over the last few years, many would-be buyers have been forced to sit on the sidelines as interest rates soared.

When higher interest rates were combined with a nationwide inventory shortage, prices rose, and it became even harder for people to purchase homes.

In most cases, a shortage in inventory leads to sellers getting to virtually pick the offer that they want to accept, but that wasn’t how things worked this time. Instead, fewer buyers resulted in houses that would once fly off the market sitting there with signs in the yard for months or even longer.

There is some hope that 2025 is going to see a bit of a turnaround in the housing market. Whether you’re looking to buy or sell a home in the coming year, it’s important to know about some real estate trends that you can look out for.

Questions About Interest Rates

A few weeks ago, it was announced that interest rates were not expected to drop in 2024. However, things changed suddenly when rates reached their lowest point in more than two years in September 2024.

By and large, high interest rates have been the primary reason for the dearth of real estate market activity, and any decrease in them gives hope to both buyers and sellers.

For the last several months, most market experts have agreed that 2025 wouldn’t see a drop in interest rate with some even saying that they expected rates to rise.

However, the recent decline in interest rates means that homebuying may become a reality for millions of potential buyers, making this perhaps the most important market trend to keep an eye on going forward.

We’ve already had one unexpected drop in interest rates, and the idea of more is a welcomed reprieve for people who are looking to buy or sell a home.

Bigger Isn’t Always Better

By all accounts, the minimalist trend looks like it’s here to stay, at least for a while. With this in mind, we’re moving past the days when homebuyers looked for the biggest homes in the neighborhood.

In the past, even young professionals who had yet to start families would look to purchase bigger homes so they could “grow into them,” but that’s not necessarily the case anymore.

First of all, Gen Z buyers have a greater focus on sustainability, and smaller homes typically leave less of a carbon footprint. This generation, according to studies, also prioritizes value and affordability over other attributes.

This means if a young couple finds a home that meets their current needs at a price that they’re comfortable with, they’re more likely to purchase it than a larger home at a higher price.

Also, more and more young people are deciding not to have children. While this is a personal life choice, it does have a direct impact on the housing market.

If young couples decide early in their relationships that they don’t want children, they’re more likely to settle into a two-bedroom home than saving up to purchase a four-bedroom home. Smaller homes seem to be incredibly popular among younger homebuyers, a trend that’s not expected to change any time soon.

Sustainability and Energy Efficiency Matter

Trying to minimize their carbon footprint isn’t the only thing that young homebuyers are looking for. Yes, they’re more focused on the environment than some previous generations, but there are also financial ramifications in play.

As we briefly discussed, Gen Z homebuyers care about sustainability and value over other features.

Features like solar panels, energy-efficient windows, and EnergyStar appliances are considered major pluses in the eyes of homebuyers. Things in our society are more expensive than they’ve ever been before, which leaves many people looking for ways to save some money.

Homebuyers have always been allowed to ask about monthly utility bills, but studies show that more of them are doing so than ever before. If you’re selling a home, investing in some energy-efficient options can help you get a better offer and get your home off the market faster.

More Moves to Suburbia

One of the most interesting trends that started at the height of the pandemic was the migration away from urban epicenters to suburbia, and that’s a trend that’s not expected to slow down anytime soon.

More and more people are looking for homes that are somewhat close to metropolitan areas but don’t put them right in the middle of everything going on in their nearest big city.

This trend has largely been driven by the ongoing increase in remote work. When the COVID-19 pandemic reached its peak, countless companies of every size allowed employees to work from home.

With things largely under control, companies realized that they were getting the same amount of work out of their remote employees without having to pay as much in monthly overhead costs, with many companies shuttering their in-person offices permanently.

When there was no longer a need to live in major urban areas in order to be close to work, those former city dwellers started looking for a calmer, quieter alternative. Suburbia experienced a boom, and market analysts expect it to continue through next year.

Remote work is the “new normal,” which means people don’t have to live in major cities any longer.

Increased Rental Demand

Perhaps the only people who have been reaping the benefits of the recent chaos in the housing industry are landlords, and that’s expected to be the case in 2025, too.

Over the last few years, people who couldn’t afford interest rates and those who couldn’t get approved for the exorbitant asking prices of homes turned to renting their homes. Even though rates recently dropped, we’re still facing high interest rates nationwide, and there’s an ongoing inventory shortage.

With this in mind, landlords are going to continue to benefit from the state of the housing market in 2025. Construction prices are higher than they’ve ever been before, which means new homes are not being built at a fast enough rate to meet the ongoing demand.

Combined with the affordability issues that still plague many buyers, renting is going to be just as prominent next year as it has been in 2024.

The Impact of Technology on Real Estate

Every industry in the world has been impacted by technology, but it could easily be argued that no industry has been more impacted than real estate. 3D renderings of homes, virtual tours, and digital closings have become the norm in recent years, and that will be the trend going forward.

Thanks to some prominent real estate apps like Redfin, it’s now possible for buyers and sellers to largely navigate the entire transaction digitally, which speeds things up exponentially.

It's also worth noting that changes to how buyers’ agents get paid will likely factor into this more comprehensive role of technology.

If buyers don’t want to pay their own agents and sellers aren’t willing to pay a second agent out of the proceeds of the home, more and more buyers will research their own listings and make choices based on what they find online.

What's Coming in the 2025 Real Estate Market?

The 2025 housing market may not look completely different than it has in recent years, but there will be some changes.

Whether you’re a homebuyer looking to get into the market or you’ve been trying to sell a home for the last few years, next year may be when your dream becomes a reality.