From mortgage rates to home sales, here's what's ahead for the housing market next year
The US housing market is expected to remain under pressure in 2025 as affordability challenges and the “lock-in effect” continue to dampen activity.
According to Fannie Mae’s Economic and Strategic Research (ESR) Group in its December 2024 outlook, existing home sales will see only slight improvement from their current multi-decade lows.
While the broader economy is projected to grow at an above-trend pace through 2026, the housing sector faces ongoing headwinds, including elevated mortgage rates, limited supply, and regional disparities in market activity.
“From an affordability perspective, we think 2025 will look a lot like 2024, with mortgage rates above 6%, home price growth easing from recent highs but staying positive, and supply remaining below pre-pandemic levels,” said Fannie Mae chief economist Mark Palim.
Mortgage rates, though expected to decline modestly, are forecast to remain above 6% for much of the year. Palim noted that volatility in mortgage rates could offer temporary opportunities for buyers to lock in lower rates, but overall affordability will remain a challenge.
“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,” Palim explained.
The “lock-in effect” continues to play a major role in suppressing housing turnover, with homeowners reluctant to sell and lose their current lower mortgage rates. This dynamic has contributed to the stagnation of existing home sales, which remain near 30-year lows.
However, Fannie Mae’s report highlighted regional differences in housing activity.
In markets like the Sun Belt, where new construction has been robust, homebuilders are addressing affordability concerns by targeting first-time homebuyers. This has kept housing activity relatively strong in these regions.
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“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 said.
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