With mortgage rates forecast to remain above 6%, inventory expected to remain tight, and home prices predicted to stabilize at their current highs, its looking like the housing market won’t see much of a “thaw” in 2025, Fannie Mae’s Economic and Strategic Research (ESR) Group says in a recent report.
As a result, existing-home sales are forecast to rise only slightly from their recent multi-decade lows, the ESR Group predicts.
Because mortgage rates are unlikely to drop below 6%, those homeowners with mortgages in the 2.5%-5% range will likely continue to stay put – save for life-changing events – thus perpetuating the “lock-in effect” that has slowed the housing market’s velocity.
The broader economy is expected to remain on solid footing and expand at an above-trend pace through 2026 as it navigates elevated core inflationary pressures and heightened policy uncertainty, the ESR Group writes in its report.
Existing-homes sales are forecast to remain near their 30-year lows in 2025 – but as always, this will vary by market.
In addition, new home sales will continue to be a bright spot in 2025.
“From an affordability perspective, we think 2025 will look a lot like 2024, with mortgage rates above 6 percent, home price growth easing from recent highs but staying positive, and supply remaining below pre-pandemic levels,” says Mark Palim, senior vice president and chief economist for Fannie Mae, in a statement. “Still, heightened mortgage rate volatility may present opportunities for would-be homebuyers to take advantage of temporary lows, and we may see stretches where housing activity is boosted by lower rates — but, on average, we expect mortgage rates to remain elevated and a hindrance to activity.”
“While we think conditions on a national basis will remain challenging, we’re seeing meaningful regional differences in market conditions, and the homebuying experience — as the adage goes — will continue to be a local one,” Palim adds. “For example, in the Sun Belt, where construction has been robust for a few years and homebuilders are targeting first-time homebuyers with some offerings, we expect to see relatively strong housing activity. By comparison, we’re not expecting to see the same in the supply-constrained Northeast. And while we foresee the current affordability crunch hampering activity through our forecast horizon, we expect nominal wage growth will outpace home price growth for the first time in more than a decade in 2025, slowly but surely providing some much-needed relief to potential homebuyers.”
Photo: Matthieu Joannon