2025 Housing Forecast: Stubborn Rates, Sales Surge, and Price Stability
Get ready for a significant shift in the housing market! After two challenging years, home sales nationwide are poised to bounce back in 2025. But hold onto your hats, buyers—don’t expect those coveted 30-year mortgage rates to dip below 6% anytime soon. In fact, homeowners in many regions may be lucky to see price increases above 2% next year, according to insights from industry experts.
“The mortgage rates aren’t likely to budge much unless we tackle the national debt in the long run,” shared a leading economist during a recent real estate forecast summit. “With the current debt situation looming, a new normal around 6% for mortgage rates seems inevitable.”
Let’s take a trip down memory lane: When the previous administration began in 2016, the U.S. national debt was a staggering $20 trillion. Fast forward to today, and it has skyrocketed past $35 trillion. With such high public debt, private capital for mortgages is dwindling, keeping those rates stubbornly elevated.
The Federal Reserve has made moves to lower its key interest rate benchmark, cutting it three times since September. However, they hinted that fewer cuts may be on the horizon for next year.
“Short-term rates might be coming down, but we don’t expect long-term rates to follow suit,” cautioned another expert on a call with housing economists. “In fact, we anticipate 30-year mortgage rates to hover around 6.5% by the end of next year—a bit of a letdown for hopeful buyers.”
If mortgage rates were to drop, it could open the floodgates for first-time buyers, especially with more homes available than in recent years. The forecast predicts a modest 2% rise in median home prices for 2025 and again in 2026. However, if those mortgage rates remain stagnant, even these small gains won’t improve the affordability picture.
The housing market has faced its share of struggles lately, with transaction activity taking a hit. From July 2021 to September 2024, existing home sales have dipped year-over-year each month. In metro Denver alone, about 20,000 fewer homes were sold this year compared to 2021, and 10,000 fewer than in 2022.
But there’s a glimmer of hope! Nationally, home sales showed an upward trend in October, a much-anticipated change. Experts predict existing home sales could increase by 7% to 12% next year, followed by another jump of 10% to 15% in 2026. New home sales are also expected to rise by 11% next year and 8% in 2026.
Another economist has a slightly different outlook, forecasting just 1.5% growth in home sales but a more robust 6% increase in median home prices, suggesting that mortgage rates will fall enough to maintain affordability for buyers.
Meanwhile, homeowners have accumulated a remarkable $5 trillion in home equity since the pandemic began, with delinquency rates hitting near-record lows. About 40% of homeowners have no mortgage at all, and many who do are benefitting from historically low rates. Still, the so-called “lock-in” effect is starting to fade, keeping many owners reluctant to sell.
“As long as interest rates stay where they are, it’s tough to convince homeowners with rates below 5% to sell,” remarked a local real estate leader. “We need to find ways to incentivize them to make a move.” For many homeowners, the slow resale market hasn’t created any pressing issues.
On the flip side, a quiet crisis brews for potential buyers. Renters are pushing back their first home purchases to an average age of 38, assuming they even have the income to do so. First-time buyers, who once represented 40% of home sales, now account for barely 25%.
The rate of rental households is growing three times faster than ownership households, leading to a less dynamic housing market. Fewer Americans are relocating and instead are choosing to stay put, impacting the vibrancy of both the housing market and society at large.
Looking ahead, experts have marked key housing hotspots for 2025, with cities like Boston, Indianapolis, Phoenix, Grand Rapids, Charlotte, and Kansas City topping the list of exciting markets to watch.
