Zillow is predicting an increase in home-buying activity in the Southwest spreading from the Southeast in its latest forecast for the 2025 real estate market. According to Zillow’s market heat index, the markets where buyers have the most leverage are in the Southeast. Zillow predicts that these buyer markets will spread westward to the Southwest, as inventory continues to rise in affordable metros in that region.
Southwestern markets should have the greatest number of movers, according to Zillow, which will create a surplus of inventory in the region. Sellers will feel pinched by competition, while buyers will have more to choose from. If mortgage rates see more of a decrease than is anticipated, that will put a damper on the migration toward the Southwest, Zillow predicted, since more buyers will be looking to get into the market, which will match the greater inventory and give sellers more leverage, decreasing affordability for the region.
Zillow’s prediction for mortgage rates is that they will remain volatile, with chaos being the only real constant for that housing market indicator. Zillow’s predictions cited September 2024 as evidence for this claim, with its spike in consumer activity being a good predictor of what will happen if rates drop by significant margins in 2025, with refinancing leading the way as an indicator of increased activity.
Soon thereafter, mortgage rates rose again to nearly 7%. According to Zillow, real estate professionals should expect to see a number of these types of swings in 2025, with unpredictability being a key factor.
In terms of general housing market activity, Zillow predicts modest growth in home values for the 2025 year, with a forecast of 2.6% average rise. Existing-home sales are predicted to be 4.3 million, an increase from 2023’s 4.1 million and 2024’s 4.0 million projection.
Zillow predicts that buyers will have more leverage due to increased inventory in 2025, with more time to negotiate prices resulting from more inventory to choose from and more average time on the market to aid that dynamic as well.
Zillow also forecasted that the pandemic-era need for more space due to social confinement will end, and people will show more of an inclination toward smaller, more manageable spaces. Zillow says these are more sustainable, affordable and desirable ways to live.
The real estate listing giant also noted that “cozy” as a term is showing up on more and more listings—a 35% increase from 2023 to 2024—which shows a shift toward more contained spaces with their own style and purpose.
In the renting world, Zillow says that the multifamily construction boom has led to a rise in renter concessions such as free weeks of rent and free parking, but those concessions are predicted to end or peter out in 2025, especially toward the second half of the year.
Lastly, Zillow predicted that property managers will be forced to be more pet friendly, since 58% of renters have a pet, according to its research.
