A mix of optimism and uncertainty as forecasters look to 2025
Panelists at NAR’s economic summit expect a better year overall, but pointed to various wildcards that could tug the market in different directions.
Key points:
- Economists generally agreed that mortgage rates will remain around current levels in 2025.
- There was less consensus on home sales, however, as new housing policies could have broad economic impacts.
- The prospect of less regulation and lower taxes is seen as a positive for the industry, while potential tariffs and deportations of immigrants could hamper home construction.
While striking an optimistic tone overall, economists at NAR's annual economic summit offered a range of predictions about the market — and some concerns about the potential effects of policy changes coming out of a new administration in 2025.
The online discussion and presentation featured viewpoints from experts across the real estate spectrum including residential, lending and construction, as well as commentary from regional economists who offered insights into their local markets.
The new normal for mortgage rates? We're looking at it
While the panelists didn't agree on everything, they were closely aligned on one topic: mortgage rates. They expect rates to remain elevated in 2025, hanging around 6-6.5% throughout much of the year — even if the Federal Reserve continues to cut rates. Predictions of "higher for longer" mortgage rates are based on broader economic factors including inflation — which many economists believe is at risk of increasing under a Trump administration — and the rising national debt.
Lawrence Yun, chief economist for the National Association of Realtors, pointed out that while cuts by the Fed will help short-term interest rates, the looming deficit will probably keep long-term rates elevated.
"Mortgage rates may not move all that much unless somehow we can address the national debt in the longer-term perspective," Yun said. "We do not have to fix any national deficit or debt situation in a single year; there just needs to be a credible plan to bring it down over the future years and then maybe we can get the mortgage rate down more meaningfully."
A range of views on home sales, and some hope for the mortgage sector
Putting a number on next year's home sales appears to be more challenging given the potential shifts in housing policies and the uncertain direction of rents, leading to wider variance in the forecasts.
Yun continues to be bullish, predicting existing home sales will hit 4.5 million in 2025. That would be quite a jump, given the annualized rate was 3.96 million at the end of October.
"We have had two years of difficulty in home sales, but we are seeing some green lights," Yun said, noting that existing sales in October were up year-over-year — something that hasn't happened since July 2021, according to NAR data.
But others are predicting much slower growth next year. Realtor.com's chief economist Danielle Hale is forecasting just 4.07 million existing home sales in 2025, which is only a 1.5% increase from 2024 — a year with one of the lowest levels of home sales in decades.
On the lending side, it has been nothing short of a miserable two years — but the worst may be over, said Mike Fratantoni, chief economist at the Mortgage Bankers Association, who anticipates a 20% increase in mortgage origination volume in 2025. He noted, however, that it's a modest improvement given the current low levels.
But rent prices, which appear to be softening heading into 2025, could change the equation, Fratantoni said, leading to even fewer first-time buyers next year.
"If they're being offered no rent increase and perhaps a concession to stay in that apartment, that's going to be tough to turn down in this market," he cautioned.
If rents are holding steady, what about home prices? Many of the panelists expect prices to rise, but at a slower rate than previous years — particularly if inventory continues to increase. NAR's forecast is for the median home price to go up 2% in 2025 and again in 2026.
Concerns and opportunities (especially for builders)
A big wildcard in 2025 is how the Trump administration's proposed policies will affect the market. What impact will tariffs have on inflation and building materials? Or how about the effect on the construction sector from the expected deportations of immigrants?
For builders, those concerns are somewhat offset by the possibility of tax cuts and fewer regulations, and the construction industry is feeling generally more positive about 2025, said Robert Dietz, chief economist at the National Association of Home Builders.
"The big thing is, the conversation has shifted," Dietz said, noting that the NAHB expects to see an increase in single-family construction next year. He went on to say that because housing was a top-tier issue in this election, he hopes that will translate into policy changes in 2025.