2025’s ‘defining challenge,’ and what will (or won’t) change 

Residential market trends have become notoriously hard to predict since the pandemic, but several 2025 forecasts appear to share some common threads.

Economic experts from Fannie Mae and Veterans United Home Loans are among the latest to offer their outlooks, providing insight into what consumers and industry professionals should expect in terms of market movement and borrowing rates next year. 

Will 2025 bring more of the same?

Yes and no, according to the latest predictions.

"From an affordability perspective, we think 2025 will look a lot like 2024," Mark Palim, Fannie Mae SVP and chief economist, said of the company's forecast. But he noted that elevated mortgage rates and high prices could be partially offset by wage growth, which he expects "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."

While Joe Ellison, VP of capital markets for Veterans United, agrees that affordability will remain the "defining challenge" in 2025, he also believes we'll see "a balance of opportunities and constraints" in the coming year as the market stabilizes.

Mortgage rates will stay above 6%

If there is one thing forecasters can agree on, it's that mortgage rates will remain in the 6% range in 2025. As NAR Chief Economist Lawrence Yun said last month, don't expect a return to the "good old days" of 3-4% mortgage rates.

Both Fannie Mae and Veterans United said rates will likely come down as the year progresses, with Palim noting that "mortgage rate volatility may present opportunities for would-be homebuyers to take advantage of temporary lows," but in general, elevated rates will remain "a hindrance to activity."

Veterans United predicts mortgage rates will average 6.5% but decline to 6.3% by the end of the year, "offering borrowers more favorable conditions compared to recent years" — especially "those who can take advantage of government programs," such as VA, FHA and USDA loans. 

Price growth will slow, but don't expect a surge in sales

Nationally, home prices will continue to rise but at a slower rate, with Veterans United predicting 3.2% growth and Fannie Mae forecasting 3.6% — with the caveat that "there will likely be considerable regional differences." That goes for home sales as well, with the Sun Belt likely to see "relatively strong housing activity" in 2025. 

Overall, however, existing home sales are expected to improve only modestly compared to 2024, which is on track to end with around 4 million in sales. Veterans United is forecasting between 4.2 and 4.5 million existing sales next year, and Fannie Mae is targeting 4.25 million.

Affordability is keeping sales numbers low, but it may also encourage more "creative financing solutions and loan products," Veterans United said, adding that seller concessions and incentives like rate buydowns and closing cost credits will "play a more prominent role in helping buyers get over the finish line to close transactions."

New home inventory will drive a hard bargain (until it doesn't)

Fannie Mae researchers predict 2025 will be "another solid year for new home sales" — at least, where they can be built. Given large regional variations in land availability, cost and zoning regulations, they expect the Sun Belt will continue to lead the country in new home production. 

And while ample new construction inventory and a narrowing price gap between new and existing homes have made new home sales "a bright spot" in the market, the story could change as costs climb. 

It's not yet clear how the new administration's proposed tariff policies will affect the sector, but they would likely push new home prices up — and production down. "Builders are expected to reduce housing starts in response to higher material and labor costs, further constraining the supply of affordable homes," Veterans United predicts.