Is the U.S. Home Buying Market Going to Drop in 2025?

A recent report from the Harvard Joint Center for Housing Studies found that U.S. homebuying has dropped to its lowest levels since the mid-1990s. The report, The State of the Nation’s Housing 2025 blames record high real estate prices combined with higher interests for the drop in home sales. 

While high home prices and elevated interest rates have led to lower home buying rates, other factors have contributed as well. Skyrocketing insurance costs and higher property taxes have made buying and maintaining a home less affordable which has also contributed to a decrease in home shopping. 

“There must be a concerted effort to do more to address the affordability and supply crises,” said Chris Herbert, Managing Director of the Harvard Joint Center for Housing Studies in the recent report. “The potential consequences of inaction are simply too harmful to the macroeconomy and the millions of households striving for a safe, affordable place to call home.”

Following are a few takeaways from the Harvard report:

Renters are spending too much

According to the report, for the third year in a row, the number of cost-burdened renters hit a record at 22.6 million renters or roughly 50% of renters in the country. Cost burdened is defined as a renter spending over 30% of their income on housing and utilities. Roughly 12 million or 27% of renters were severely burdened, spending a shocking 50% of their income on housing costs. 

Homeowner costs continue to rise

The cost of homeownership continue to rise, making it more expensive for potential homebuyers to find a home they can afford to maintain. The report found that in 2023, the number of cost-burdened homeowners rose to 20.3 million which translates into 24% of all homeowner households. 

The cost of insurance has shot up 57% from 2019 to 2024, pushing up the cost of homeownership dramatically. Areas that are prone to severe weather or wildfires have seen even larger increases. In some markets, finding coverage in the private market has been difficult to impossible. 

Property taxes have also gone up, increasing an average of 12% between 2021 and 2023.

High Home Prices 

Home prices are headed up, in fact the report found that between 2019 and 2025, nationwide, home prices have gone up 60%. Prices are still climbing, headed up at a rate of 3.9% annually. Nationwide the median price of a single-family home was at a record high of $412,500 in 2024. As prices have continued to rise, existing home sales hit a 30-year low.

Barriers to homeownership rise

As the cost of buying and owning a home continues to rise, fewer renters are able to cross over to homeownership. In 2024, the median monthly mortgage payment on a median priced home hit $2,570. This puts the cost of a mortgage a shocking 40% higher than it would have been in 1990. A homebuyer needs an annual income of $126,700 to afford it. 

“Only six million of the nation’s nearly 46 million renters can meet this benchmark,” said Alexander Hermann, a Senior Research Associate at the Center in the recent report. “Amid this, the U.S. homeownership rate fell in 2024 for the first time in eight years.”

Demand for Rentals is Very Strong 

Renters are having a harder time becoming homeowners which has led to a jump in the renter population, it grew by 848,000 in 2024. The greater demand is making rentals harder to find as well as more expensive. 

Much of the recent building is at the upper end of the market with the number of lower rent units dropping significantly in recent years. 

Tariffs and Immigration Enforcement May Raise Prices

The report found that federal policy will most likely lead to higher home prices. Homebuilders are predicting that tariffs could increase the cost of the average new home by $10,900 each. In addition, a reduced labor pool due to immigration enforcement may lead to higher labor costs which will be passed on to homebuyers. 

You can read the full report here.