March 17, 2025
The 2025 housing market presents a unique blend of challenges and opportunities for prospective homebuyers. As mortgage rates continue to fluctuate and inventory remains tight, potential buyers need to approach the process with a well-informed strategy.
From understanding the broader market trends to making thoughtful financial choices, a number of factors can impact your success in buying a home in 2025—the current state of the housing market, important steps to take before you buy and the financial options available to ensure that you make the right decision at the right time.
Our Current State of the Housing Market
As we move through 2025, the housing market remains in a state of flux with factors like high home prices, shifting mortgage rates and low housing inventories continuing to shape buyer behavior. Let’s put things in perspective: According to the Zillow Home Value Index, the average home price was $221,207 in February 2018. By December 2024, the average home price had risen to $356,585. That’s a staggering 62 percent increase in the average cost of a home.
Mortgages
Most homebuyers must finance that cost through a mortgage. According to The Mortgage Reports data, the average 30-year rate struck its low in 2021 at 2.96 percent. However, the average jumped to 5.34 percent in 2022, hopped again to 6.81 percent in 2023, then settled around 6.72 percent for 2024. Since mortgage interest rates are closely tied to the Federal Reserve’s measures to control inflation, much of whether rates rise or fall and by how much depends on how the Fed views the economy.
For a practical view of what it all means for a potential mortgage borrower, we can compare some figures from 2021 to now.
- In December of 2021, the average home value was $308,017. A 30-year fixed-rate mortgage at 2.96% would have required 20 percent down—$61,603. The monthly payment would have been around $1,300 a month depending on locality and the associated taxes.
- In December of 2024, the average home value was $356,585. A 30-year fixed-rate mortgage at 6.72 percent would have required 20% down—now $71,317. The monthly payment would have been around $2,200 a month depending on locality and the associated taxes.
- If you were to reduce the interest rate to 5%, for example, for that same home value of $356,585, you would still need the $71,317 to put down 20%, but your monthly mortgage payment would fall to around $1,875—a difference of around $325 a month.
For individuals who don’t have the 20% down payment, costs are still higher for the average $356,585 house. A 5% down payment would be just $17,829, but the monthly premium—including taxes and the required private mortgage insurance—would total about $2,532 a month.
Home Inventories
Meanwhile, the sheer lack of homes available to buy is keeping prices high. Many homebuyers would like to move, but they fear that the proceeds from the sale of their home might not be enough to buy another—and that is if they can find anything to buy in a new location. Typically, the number of homes for sale is at its lowest in January and peaks in the May-to-June timeframe. However, 2023 and 2024 have had surprisingly limited inventories.
- In May 2019, 584,354 homes were in the housing inventory according to FRED, the Federal Reserve Bank of St. Louis.
- In May 2024, only 433,906 homes were in the inventory.
- As of January 2025, only 327,016 homes were available.
Whether 2025’s inventory will increase remains to be seen, but the January 2025 figure is more in line with previous normal years and actually slightly exceeds January 2022’s figure of 323,876 homes.
Best Practices for Buying a Home in 2025
Many of the best practices for buying a home should be considered well before asking a realtor to look at a home. This is the necessary prep work that will make the actual home-buying process smoother and less stressful.
- Know your credit score. Your credit worthiness plays a major role in securing the best mortgage rates. A higher credit score can qualify you for lower interest rates, and a favorable interest rate can save you thousands over the life of a loan. If your credit score needs improvement, consider taking steps to pay down debt and improve your scores. You can request a free credit report from the three national credit reporting bureaus — Experian, Equifax and TransUnion — once a year.
- Know your assets and debts. Know what you own versus what you owe. On the plus side are your savings and investments, for example, or any financial gifts you may be counting on. Debts include any credit card balances, student loans or car payments, for example. Lenders assess your debt-to-income ratio to determine how much home you can afford, so paying down high-interest debt and ensuring your finances are in order can put you in a stronger position for mortgage approval and more favorable loan terms.
- Get prequalified for a mortgage. Before you start browsing listings or attending open houses, work with your lender or credit union to get prequalified. This simple process not only gives you a clear understanding of your budget but also signals to sellers that you’re a serious buyer. Having a prequalification letter or preapproval can strengthen your offer in competitive markets.
- Double down on savings. Your budget will need to extend beyond just the listing price of a home. Many buyers focus on the cost of the home itself but fail to factor in additional expenses like closing costs, property taxes, homeowners insurance and ongoing maintenance. Every dollar you save in advance will help to cover the costs of buying a home. However, understanding the full financial picture helps prevent unexpected surprises down the road.
- Don’t make major financial changes. Opening new lines of credit, taking out a car loan, making large purchases or even changing jobs right before securing a mortgage can impact your financial profile and potentially jeopardize your mortgage approval. Lenders need to see financial stability, so most recommend holding off on any major financial moves until after your home purchase is complete.
- Don’t skip the home inspection. Even if a property looks perfect at first glance, certain conditions that may not be obvious to you may actually prove to be costly issues later. Structural problems, faulty wiring or plumbing concerns may be lurking beneath the surface. A thorough home inspection can help you avoid unpleasant surprises and give you the chance to negotiate repairs or reconsider the purchase.
- Don’t overextend your budget. A real estate agent may tempt you to max out your prequalified or preapproved amount—or even look a bit higher. However, choosing a home that fits comfortably within your financial means will allow room for unexpected expenses and future life goals. Buying at the top of your budget may leave little flexibility for emergencies, home improvements or lifestyle changes down the road.
By taking a thoughtful and informed approach, you can set yourself up for success and feel confident in your homebuying journey.
Mortgage Financing with a Bank Versus a Credit Union
When financing a home, choosing the right lender can make a significant difference in your mortgage experience. Banks and credit unions both offer home loans, but their approaches to lending, interest rates and customer service can vary. Understanding these differences can help you make the best decision for your financial situation.
- Banks operate as for-profit businesses, so their primary goal is to maximize earnings for shareholders. This often influences not only their loan offerings but also their fees and interest rates. Their size and resources often allow them to offer extensive online tools and automated processes that streamline loan applications and approvals. However, this efficiency can come at the cost of flexibility. Banks tend to have more rigid lending requirements and may be less willing to negotiate terms. Customer service at large banks may be less personal since loan decisions are often based on strict underwriting criteria rather than individual financial circumstances.
- Credit unions operate as nonprofit financial cooperatives, so their primary goal is to serve their members rather than generate profits. Because of this, they often provide lower interest rates, reduced fees and more favorable loan terms than traditional banks. Another advantage is their personalized approach. Credit unions are often more willing to work with borrowers who have unique financial situations like self-employment or nontraditional income sources. If you already have a strong banking relationship with a credit union, you may benefit from a more tailored lending experience and greater flexibility in negotiating loan terms.
When deciding between a bank and a credit union for your mortgage, consider both the cost savings and the level of service you prefer. A credit union may offer a more customized experience and lower long-term costs while a bank might appeal to those looking for a wide variety of financial products and digital conveniences.
Taking the time to compare rates, terms and service levels can help ensure you secure the best mortgage for your needs.
Make Homeownership Easy with La Capitol Federal Credit Union
Buying a home is one of the biggest financial decisions you’ll ever make, and choosing the right lender can make all the difference. Whether you’re a first-time buyer or looking to refinance, La Capitol’s mortgage experts are here to guide you every step of the way. With tailored lending solutions and a commitment to helping members achieve their homeownership goals, we make securing a mortgage easier and more affordable.
Explore La Capitol’s Mortgage Center to learn more about your options, and check out our Mortgage Buyers Guide. It's the perfect resource to give you everything you need to take the next step toward owning your dream home.