According to Zillow’s latest forecast, home values will fall by 1.4 per cent in 2025, maintaining the same projection from last month’s forecast.
This decline comes as more sellers return to the market, giving buyers increased negotiating power.
Despite the downward pressure on prices, existing home sales are expected to see a modest increase.
Zillow forecasts 4.14 million sales in 2025, representing a 1.9 per cent increase over 2024 levels.
The rental market is also showing signs of cooling.
Single-family rents are projected to rise by 2.8 per cent in 2025, while multifamily rents are expected to increase by just 1.6 per cent.
Both forecasts have been revised downward from previous estimates.
Recent construction activity has helped balance the rental market by increasing vacancy rates, contributing to the more moderate rent growth outlook.
This trend, combined with other indicators of market cooling, suggests rental increases will be more restrained in the coming year.
Zillow said elevated mortgage rates continue to be a significant factor in the housing market outlook.
Combined with concerns about a potentially weakening labour market, these high rates are expected to keep some potential buyers on the sidelines despite increasing inventory.
Affordability remains a major obstacle for many would-be homebuyers, particularly those looking to purchase their first home.
The persistent gap between housing costs and income levels continues to limit market participation for many Americans.
Skylar Olsen, chief economist at Zillow, said there were growing challenges facing potential homebuyers in the current economic climate.
“Home prices are increasingly untenable to potential homebuyers,” Ms Olsen said.
“Waning consumer confidence, heightened insecurity over economic uncertainties and the future of household budgets are impacting the consumer housing market.”
