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The past 12 months have put the real estate market in a blender, with market headwinds and regulatory changes twisting the landscape for agents and consumers alike.
However, with 2025 around the corner, there’s renewed hope for a market rebound as inflation inches closer to 2 percent and the Federal Reserve projects several more rounds of federal funds rate cuts into 2025 — a measure that could lower mortgage rates and unlock pent-up demand.
The National Association of Realtors laid out the roadmap for that burgeoning rebound in its annual Real Estate Forecast Summit, which featured insights from NAR economists Lawrence Yun and Jessica Lautz, Realtor.com Chief Economist Danielle Hale, National Home Builders Association Chief Economist Robert Dietz, and Mortgage Bankers Association Chief Economist and Senior Vice President of Research and Industry Technology Mike Fratantoni.
The panelists were cautiously optimistic about 2025, as mortgage rates cha-cha back down to the 6 percent range and inventory levels experience a much-needed increase thanks to better homeowner activity and a boost in medium-density building.
However, concerns over high government spending, along with President-Elect Trump’s potential tariff and immigration policies, cast uncertainty on the new-home market, while continued affordability challenges for first-time and lower-income buyers mean the new normal will be slower than the early pandemic heyday.
“I think it’s really important to hear what people are seeing across the industry,” Hale said. “I will say at Realtor.com, we also expect home sales to go up in 2025 after two very slow years. We don’t think we’re going to see a huge increase.”
Here’s a recap of the hour-long session and what agents need to keep an eye on in the new year.
Mortgage rates will continue to fall
Lawrence Yun
Mortgage rates have been on a rollercoaster this year, as the Federal Reserve continues its quest to carefully lower inflation by cutting the federal funds rate. Although cutting short-term rates usually yields more favorable mortgage rate trends (the Fed does not directly control mortgage rates), that hasn’t necessarily been the case in 2024 as bond market investors still worry about sticky inflation.
NAR Chief Economist Lawrence Yun said the latest consumer price index (CPI) data was slightly disappointing, as the index rose 0.3 percent on a seasonally adjusted basis to 2.7 percent. However, Yun is still optimistic that the Fed will get much closer to the 2 percent target in 2025, with four to six more rounds of short-term rate cuts.
“[Inflation] is trending towards 2 percent, which will give comfort level for the Federal Reserve,” he said. “They control the blue line, and they want to move it back, possibly something close to pre-COVID level 2019. If the Fed funds rates were moving towards 3 percent, it certainly could bring down mortgage rate to some degree.”
That decline could put mortgage rates around 6 percent — 20 percent from the long-awaited 5 percent mortgage rate that’s been touted as the golden number to get homebuyers and homesellers off the sidelines.
“Mortgage rate pre-COVID was around 4.5 percent,” he said. “The mortgage rate under the first President Trump presidency averaged between 4 [percent] and 5 percent. But the new normal will be higher, at 6 percent. Now, 6 percent, by historical standards, is not bad. In fact, it’s below the long-term average of 7 percent.”
Danielle Hale
Realtor.com Chief Economist Danielle Hale said mortgage rates of 6 percent would give consumers enough breathing room to make a move in 2025. Slowing home price growth, she said, matched with 6 percent mortgage rates and healthy wage growth would yield net equal monthly payments for homebuyers.
“We expect them to end [2025] just above 6 percent, and average about 6.3 percent across the entire year. Altogether, we think that’s going to be a net equal for monthly payments,” she said. “The cost of buying a home will probably stay about flat, a little higher, depending on which month you’re looking at. But income gains are going to help increase or improve affordability somewhat marginally.”
National Association of Home Builders Chief Economist Robert Dietz and Mortgage Bankers Association Chief Economist Mike Fratantoni agreed with Yun and Hale’s 6 percent prediction while highlighting the impact of government debt and spending on rates. Dietz and Fratantoni said it’ll be difficult to pull rates toward 5 percent without getting government spending under control.
“Our mortgage rate outlook is that we will see sustained mortgage rates somewhat below 6 percent by the time we get to 2026,” Dietz said. “It’s going to trend lower and unevenly as we move forward. That should help housing affordability, but it would be great if we got a reduction in government spending that would help the bond market in terms of mortgage rates.”
Homeowners and cash buyers will continue to thrive
The past few years have been difficult for consumers, as they’ve been pummeled by the effects of rising mortgage rates, record-high home prices and inventory challenges in pockets of the country. However, 2024 has shown the beginnings of a silver lining for two groups of consumers — homeowners and cash buyers.
“[There’s] no crisis for homeowners. We have seen a substantial increase in housing equity, especially in recent years, and this is translating into a $5 trillion addition from the onset of COVID to now,” Yun said. “The clients of past Realtors, they are doing super well.”
Despite economic bumps, Yun said homeowners have done well in keeping up with their mortgages, meaning they’re in a great position to continue building equity in their current home or leveraging that equity to upgrade or downsize in the coming years. “We are essentially at historically low in terms of the delinquency in the mortgages,” he said.
Robert Dietz
For homeowners staying in place, Dietz said the homebuilding market is gearing up for an explosion in renovations.
“The thing that I think is least talked about in terms of the housing market is that remodeling is approaching a super cycle,” he said. “Homeowners have, as Lawrence noted, more than $30 trillion in home equity. We have an aging housing stock … So we’re really looking for growth in the remodeling sector.”
On the buyer side, cash buyers are winning the housing game. NAR Deputy Chief Economist and Vice President of Research Jessica Lautz said cash buyers have focused their efforts on snapping up primary residences, a shift from past years where wealthy buyers concentrated their efforts on secondary or vacation homes.
Jessica Lautz
“We can see that all-cash buyers have actually hit an all-time high. It’s not mom-and-pop investors. These are really primary residence buyers,” she said. “It’s not a surprise to see that repeat buyers who have this tremendous amount of housing equity are reaching nearly a third. What is surprising is that one in 10 first-time homebuyers in the last year actually purchased their home with all cash without financing that purchase.”
Seven percent of cash buyers used their inheritance to fund their purchase, Lautz said. Although that’s a relatively small percentage, Lautz said it signals the beginning of the wealth transfer from baby boomers to Gen-X and millennials.
“So perhaps not the silver tsunami that we thought would happen, this generational transfer of wealth, but we are seeing a trickle into today’s real estate market of this transfer of wealth to young adults,” she said.
First-time buyers will struggle to get their footing
While homeowners and cash buyers have a clear path to seize market opportunities in 2025, first-time will likely continue to crack under the weight of worsening affordability and other economic headwinds. Yun and Lautz said NAR’s latest data about the typical age of first-time and repeat homebuyers shows the possibility of the United States turning into a nation of renters unless affordability in the for-sale market improves.
“We know that some years ago, people in their late 20s became first-time buyers. They became first-time buyers when the mortgage rates were 12, 10 or 8 percent,” Yun said. “Whatever the mortgage rates were, people became first-time buyers in their late 20s or early 30s. Well, the median age [for first-time buyers] in 2024 was 38 years old. Quite depressing.”
“[It’s] not enough years to sort of accumulate wealth over time,” he said. “…The sooner one becomes a homeowner, [there’s a] better chance of building wealth over time.”
Lautz said affordability is the main culprit behind the shrinking presence of first-time buyers, who only accounted for 24 percent of sales in 2024 — a 40 percent decrease from the pre-2008 historical average of 40 percent. Rising rents, the challenge of saving amid record inflation and student loan debt are a sizable part of the equation, Lautz said, as aspiring homeowners find it impossible to balance those financial responsibilities alongside the costs of homebuying.
“The repercussions of that, of course, means lost wealth over one’s lifetime, perhaps one less move on the table,” she said. “What’s really important to note is the typical age of the repeat buyer has also climbed to an all-time high. It’s now 61 years old.”
The rise in the typical age of the repeat buyer is also concerning, she said, as in past decades, a 61-year-old would be moving toward their third or fourth purchase.
“Today’s repeat buyer is now very likely a baby boomer in today’s housing market. Very different age than what we would have seen historically, as someone could have been in their late thirties historically when they went to purchase their second or third home,” she said. “We’re also seeing an all-time high of multigenerational buyers.”
“Something that’s quite important as we think about affordability constraints, people pooling their money to be able to purchase a home together, but also thinking about elderly relatives, caregiving situations there, and then young adults boomeranging back,” she added.
As for 2025, Hale said cooling rent trends mean first-time homebuyer activity will remain flat.
“Those facing the rent versus buy trade-off will find that the short-term costs are tipped very much in favor of renting,” she said. “You have to think very long-term for the financial benefits of homeownership to pay off, given the cost structure today. And we think that’s going to continue to be the case. It’ll keep rents relatively flat and likely cause the homeownership rate to come down again, as those first-timers just really have a hard time getting onto the property ladder.”
President-elect Trump’s tariff policy will threaten housing starts
As the market looks forward to a meaningful bump in existing-home inventory next year, the new-home market is facing the risk of President-elect Trump’s tariff policy thwarting growth.
“We’re concerned about tariffs,” Dietz said.
The NAHB chief economist said they’re awaiting more information about Trump’s outlook on tariffs this go-round, which may include tariffs of 25 percent on goods from Mexico and Canada.
He’s been less clear about the tariffs on Chinese goods, switching from 60 percent to a 10 percent increase of the existing rate. However, his first term provides a clue of what could happen if he makes good on upping tariffs on his first day in office.
In 2021, Trump’s heightened tariffs on Canada led to a boom in the cost of sales contracts for two-by-fours, steel and gypsum (a.k.a. drywall). Labor shortages and supply chain issues exacerbated the issue, ultimately tacking an extra $35,872 onto the price of an average new single-family home.
“We think about a little less than 10 percent of construction materials used in housing are imported, and there’s already a 14 percent tariff on lumber, so that potentially could increase the cost of construction,” he said. “In terms of the big wildcard, how is immigration enforcement policy going to play out? That could have demand-side and supply-side effects.”
“We already know we have a skilled labor shortage,” he added. “If we’re in an environment where we could potentially lose tens of thousands, 100,000 workers to the residential construction industry, that would slow down the pace of homebuilding as we move forward.”
Whatever worries exist about Trump’s tariff and immigration policies could be offset by his tax policies, Dietz said.
“On the positive side, we are expecting an extension of the 2017 tax cuts, which will help businesses, including builders and remodelers,” he said. “The big thing is the conversation has shifted. We’re expecting improvements in the regulatory environment that will help housing supply and construction and increase inventory.”
Trump policies aside, the experts still had an optimistic outlook on housing starts for 2025. Hale said she looks forward to an inventory bump next year to provide “more balance” to the market and Dietz said homebuilders are making strides with medium-density projects, such as townhouses.
“Townhouse construction was up 6 percent in 2023 in a year where single-family home building was down 6 percent,” he said. “So it’s a good example that, if we can get changes in zoning and allow medium-density construction, we can absolutely add the inventory we need.”
The South and Midwest will be hot, hot, hot
Amid the economic talk, Yun unveiled NAR’s 2025 hottest markets list, which includes Boston, Charlotte, Grand Rapids, Greenville, Hartford, Indianapolis, Kansas City, Knoxville, Phoenix and San Antonio. These markets, he said, have favorable economic and socio-economic trends that could open the path for a banner sales year in 2025.
“Some states have slightly lower mortgage rates compared to others, depending on state law on how easy it is to foreclose upon a home,” he said. “That means the banks will be more readily available to lend the money knowing that some homeowners who are missing payments will not squat on their home for a long period.”
“Faster job creation, positive net migration. But on top of that, how many new migrants actually buy a home, propensity to buy? How many are pent-up sellers? How many have overstayed in their home?” he added. “Typical homeowners would stay in their home 10, 11 or 12 years, but how many are staying much longer than that, which is implying some pent-up seller condition. So factors like this, we incorporated and these are the top 10 hotspots that we see in 2025.”
Mike Fratantoni
Fratantoni said 2025 – particularly the spring — has the potential to yield the rebound the market is looking for.
“I’ve been telling our members that I’m optimistic about spring 2025,” he said. “I think all the factors are lining up that we could really see the increases that we’re talking about and inventory really being the one to focus on.”
“So we’re looking for about 20 percent growth in mortgage origination volume in 2025 compared to 2024. It has been a miserable couple of years to be a mortgage lender,” he added. “Volume has been just abysmally low. So this is an increase off a low base. In terms of home sales, very much in line with what you all had said, about 5 percent growth in existing home sales, 10 percent growth in new home sales.”
However, the MBA leader said his optimism comes with a healthy dose of caution. The global economy is slowing, he said, and the U.S. economy is predicted to do the same in 2025 and 2026. That alongside worries about affordability, the risk of rising unemployment and other unexpected headwinds could easily dash hopes of a 2025 rebound.
“What I’m worried about is, you know, this business is so seasonal, right? It’s not just ‘Are the right things in place?’ It’s, ‘Are they all in the right place at the right time?’ The last couple of years, we’ve gotten a spike in rates right in the middle of the spring.”
“And so who knows sort of what shock in the global economy could lead to that or what factor could lead to that coming at the wrong time,” he added. “That’s what I worry about.”
Email Marian McPherson
