Mortgage rates expected to stabilize as growth supports market rebound
After a tough period for home sales, the National Association of Realtors (NAR) has forecasted that the housing market will stabilize in the coming years, with a projected increase in home sales for 2025 and 2026 as mortgage rates level out around 6%.
With mortgage rates expected to settle around 6% and job growth continuing, NAR chief economist Lawrence Yun sees a more favorable environment for buyers and sellers on the horizon. He shared his 2025-2026 forecast during the NAR NXT event in Boston, projecting a 10% increase in existing-home sales and an 11% rise in new home sales for 2025.
“2024 has been a very difficult year on many fronts. We did not get the home sales recovery this year after an awful 2023,” he said. “Maybe the worst is coming to an end. Directionally, I think there’s going to be roughly a 10% boost of existing-home sales in 2025 and 2026.”
Homeownership has proven to be a powerful wealth-building tool. Homeowners’ equity has hit a record $35 trillion, with homeowners enjoying a median net worth of $415,000 compared to just $10,000 for renters.
“Homeowners’ wealth steadily rises while renters’ wealth does not,” said Yun. “If you don’t enter the housing market, you are in the renter class where wealth is not being accumulated. If you want to participate in the housing market, the sooner you get in, the sooner you accumulate wealth.”
Employment growth has also been a positive factor in housing demand. Since 2020, US payrolls have steadily increased, helping boost housing market activity.
“When more people work, they have the capacity or they’re in a better position to buy a home. Home sales depend mainly on jobs and mortgage rates,” Yun said, adding that job gains could support the projected home sales rebound.
Regarding whether we are going to see an acceleration of job growth, Yun stated, “The stock market is very optimistic.”
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While some may hope for a return to the historically low mortgage rates of recent years, Yun cautioned against expectations of rates falling back to 4%. He predicts mortgage rates will hover between 5.5% and 6.5% in the coming years, creating a “new normal” at around 6%.
“Mortgage rates in his first term (at 4%) were the good old days,” Yun said, addressing mortgage rates during a second Donald Trump presidency. “Are we going to go back to 4%? Per my forecast, unfortunately, we will not. It’s more likely that we’ll go back to 6%. That will be the new normal, bouncing around 5.5%-6.5%.”
Yun expects several interest rate cuts by the Federal Reserve in 2025, with the first potentially coming as early as January.
“My advice to Jerome Powell: do it in January, rather than December,” he added.
Yun estimated four rounds of rate cuts next year, though he noted that the federal budget deficit could impact mortgage funding availability as government borrowing rises.
“Today, we have a massive budget deficit at a time when we are not in an economic recession,” explained Yun. “Clearly president-elect Trump will not stop tax cuts – he will extend or expand them.
“There will be less mortgage money available because the government is borrowing so much money. However, if the Trump administration can lay out a credible plan to reduce the budget deficit, then mortgage rates can move downward.”
To address affordability, Yun emphasized the importance of adding more housing to the market.
“We have to have more supply,” Yun said in the report. “Per our advocacy efforts, we’re trying everything we can to boost supply.”
With additional supply, Yun expects home prices to increase modestly by 2% annually in both 2025 and 2026, easing the pressure on buyers.
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