With more inventory, where are home prices headed?

Last year, I predicted a national home-price increase of 2.33%. While that forecast was lower than most others, it seemed achievable due to higher mortgage rates and increased inventory. I was wrong and too low for 2024. This year, my prediction is even lower at 1.77% national home-price growth.

So far this year, the existing home price index has been higher than my forecast level every month. According to the National Association of Realtors (NAR) median sales price data, I will need some cooler price-growth data for my forecast to be correct. 

I primarily use the Case-Shiller Price Index to forecast prices, which has a history dating back to 1942.

Inventory is higher this year than in 2024, and mortgage rates haven’t dropped to 6%, which caused my forecast to be off last year. This year, the housing healing process appears to be better than last year, even with elevated mortgage rates. Let’s look at the report to see what we have today.

Home prices

From NAR: “The median existing-home price for all housing types in April was $414,000, up 1.8% from one year ago ($406,600). The Northeast and Midwest posted price increases, and the South and West registered price decreases”

Every month this year, the median price index for existing home sales has exceeded my forecast. However, this month, it is only 0.3% higher than I predicted. To align with my forecast of a 1.77% increase, I will need some months to show results below that percentage.

Like last year, housing inventory is growing and returning to normal levels while sales remain depressed. More homes for sale will help with affordability when mortgage rates do fall, as wages rise every year. Additionally, our weekend Housing Market Tracker data, which provides insights ahead of the NAR existing home sales report, supports the trend of slower price growth. So, while my forecast was wrong last year, I am more confident this year.

Existing home sales

From NAR: “Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums, and co-ops – slipped 0.5% from March to a seasonally adjusted annual rate of 4.00 million in April. Year-over-year, sales declined 2.0% (down from 4.08 million in April 2024).”

So far, despite elevated mortgage rates, existing home sales have consistently remained at 4 million or above and purchase application data has been positive year over year for 16 straight weeks. This 4 million level has been a key benchmark in my work for 14 years. Even with high rates, prices, taxes and insurance costs, we have not seen total existing home sales fall below this level for an entire calendar year in 2023 or 2024, and it doesn’t look to be the case in 2025.

 Over the next few months, the year-over-year comparisons for sales growth will become easier. In fact, from June to October last year, existing home sales were below 4 million, so if our sales trend continues, we should expect a few months of slight year-over-year growth.

Additionally, while the recent purchase application data has shown positive year-over-year growth for 16 weeks, housing data usually improves when interest rates decrease from 6.64% to 6%. Surprisingly, this year, housing data has held up better than I anticipated despite elevated rates.

Total inventory

From NAR: “Total housing inventory registered at the end of April was 1.45 million units, up 9.0% from March and 20.8% from one year ago (1.2 million). Unsold inventory sits at a 4.4-month supply at the current sales pace, up from 4.0 months in March and 3.5 months in April 2024.

In early 2021, I called for higher mortgage rates to cool down the home-price growth data, as inventory was at shockingly low levels. Getting inventory back to normal has been a challenge the past few years, but I would be 100% satisfied if it just got back to 1.52 million-1.93 million. Today, we are at 1.45 million and price growth is cooling down, which is precisely what the doctor ordered.

Historically, inventory has ranged between 2 and 2.5 million, and in 2007, total active listings were at 4 million. I don’t see that happening anytime soon. However, the positive story for me in 2024 and 2025 has been getting inventory back to a more normal level.

Conclusion

I had anticipated a softer sales report for this month; however, I am optimistic that next month will reflect a slight uptick from these levels, particularly in light of last month’s increase in pending home sales and our pending sales tracking data.

While the results may not be particularly dramatic, considering the current state of mortgage rates, I view 2025 as a positive development with more inventory and less price growth. With mortgage rates still elevated at 7% and considering all the economic drama in 2025, it has been encouraging to see inventory grow, new listing data grow, and purchase application grow all in the same year.