Despite a recent drop in mortgage rates, home prices are expected to continue climbing into 2025. The primary driver? A shortage of available homes on the market. While lower rates generally encourage buying, the lack of supply keeps prices high, making affordability a challenge for many prospective homeowners.

Experts attribute the shortage to years of under-building and a hesitant seller market. Even as rates dip, many would-be sellers are holding off due to uncertainty about finding affordable replacements or the prospect of locking in at higher prices later. With this tight inventory, buyers are finding themselves in fierce competition, driving prices even higher. “It’s a Catch-22 for the housing market,” says economist Paul Simmons. “Low rates should spur demand, but without enough homes, affordability remains a major issue.”

The struggle is particularly tough on first-time buyers, who often face higher mortgage payments relative to their income compared to previous generations. Meanwhile, some markets are seeing an influx of investment buyers, adding even more competition. Analysts predict that as more people return to urban centers and rental prices rise, demand for housing will continue to grow.

This persistent shortage poses broader economic implications. As housing prices rise, people delay homeownership, creating a ripple effect that influences everything from local economies to the rental market. For now, the market favors sellers, but unless construction picks up or rates drop significantly, high prices are here to stay.