Where is the Housing Market Headed Now?

Last month, Lawrence Yun, NAR’s chief economist held a conference to discuss the direction of the housing market. It’s good timing because this extreme conversion in US government philosophy is giving housing market forecasters big headaches.

Which way will the US economy and housing market go?  Zillow’s senior economist Orphe Divounguy has looked at the most recent numbers and is forecasting big growth in sales. He believes an economic slowdown in the H1 2025, will result in the FED lowering rates more than anticipated. But this isn’t impacting major economists home price projections for 2025, which are:

• Fannie Mae: Predicts a 3.6% increase in 2025 and 1.7% in 2026 
• Mortgage Bankers Association: Predicts a 1.3% increase in 2025 and a steady rate in 2026 
• National Association of Realtors: Predicts a 1.8% increase in 2025 and 2.3% in 2026 
• Redfin: Predicts a 4% increase in 2025 
• Zillow: Predicts a 2.6% increase in 2025 

Divounguy says the economy is strong but slowing. He cites the usual positives such as more bargaining power for buyers, more buyers, and more supply.  It sounds promising, but interest rates have been dropping yet banks are raising mortgage rates in anticipation of a supposed 5-year inflation issue. Fear-based sentiments are impacting the housing market forecast, and now we wonder when this trend will be erased and optimism will be provide tailwinds.

Lower mortgage rates would induce more resale home sales and new home purchases, good news for Toll Brothers and Remax among other real estate firms.

Something is Happening

These 2 charts from Google Trends hints at a kindling housing market that saw it’s bottom this fall season. The first chart shows searches for houses for sale for 4 major cities, Boston, Los Angeles, Dallas and Chicago. The rapid rise may show a growing optimism for 2025.

This second chart shows searches involving phrases such as “homes for sale” or “house for sale” to reveal general interest across the US.

President Trump, who takes office in 3 weeks, has been touting heavy tariffs on US imports very strongly. It has everyone spooked including stock market investors.  Some experts believe the use of tariffs will create a more favorable playing field for the US, vs global competitors/trade partners who have been running huge surpluses with the US.  Trade partners will cooperate rather than choose conflict.

His statements amounting to real threats could lower GDP and economic growth and possibly raise inflation.  Yet, a brand new Pro-US business orientation, lower taxes, and deregulation will spur investment and growth. There is an uptrend that might be just kindling of sales next year and for the next 5 years, as demand is fully unleashed. Watch out for home price growth which has started — key driver, President Trump elected.

Reduced Government Spending and Increased Tariffs

Trump’s DOGE department could reduce government spending significantly and with proposed tariffs on imports, CEOs are beginning to worry about slowed US production and earnings to deflate the Q1, 2025 and for the stock market outlook.

For real estate investors, it may amount to a longer buying period before the next big advance in prices. We have a severe housing shortage and houses take time to build. Local, state and Federal housing officials do not have a plan to ensure more housing will be built.

In fact, the northeast US may see severe shortages as demand in that region accelerates with little to no new housing being constructed. A key factor in the single-family sector, is not only demand from millennial families, but that many babyboomers don’t want to leave their homes, friends and communities.

This last human fact is something not even discussed by forecasters and policymakers. In my opinion, the supply side issues haven’t been resolved. Some have suggested that the expulsion of illegal migrants could ease the housing situation, as more tiny apartments in urban areas would be freed up for occupancy. But 10+ million illegals can’t be expelled anytime soon. President Trump wanted to free up the national debt ceiling, but he likely won’t get that. It will cost tens of billions of dollars to capture and remove them all. They’ll quickly tire of doing that.  So, demand will not cease for single family and townhouses.

Given townhouses are more affordable, it stands to reason that demand for this type will be strongest.

What is the Timeline of Trump’s Pro-US Transition?

It’s a tricky transition to a pro-American, free-market ideology. Some have forgotten what this is, given the “anyone but American” atmosphere pushed in the last 30 years.  By mid-summer 2025, the “make America great again” theme will have sunk in.  That’s despite continuous attempts to derail it.

The silver lining to tariffs and reduced gov spending is that it might encourage the FED to drop interest rates quickly. Yun noted in his speech that “mortgage rates could come down fast.”  They certainly have in Canada which is dealing with the same challenges.

“We’ve seen after presidential elections—and it doesn’t matter who wins—that there’s usually a slight boost in home sales,” Lawrence Yun said. “It removes some uncertainty. Now you know it’s the policy [of President Trump], and you can make predictions about what will happen and make a decision based on that.” “Directionally, I think there’s going to be roughly a 10% boost of existing-home sales in 2025 and 2026.” from “What’s Next for the 2025 Housing Market? via Realtor Magazine.

Economic Outlook 2025

The recent job report indicating declining employment rates and a slipping economy adds some worries about the U.S. housing market. Total nonfarm payroll employment rose by 227,000 in November, and the unemployment rate
changed little at 4.2%.  Average hourly earnings for all US employees on private nonfarm payrolls grew .4% or 13
cents and are up 4% over the past 12 months.

Lawrence Yun predicts an uptick of nearly 2 million jobs for 2025 and another nearly 2 million increase in 2026, which should bode well for the housing market. Skylar Olsen, Zillow’s chief economist, states, “anticipates a more dynamic housing market in 2025, with buyers gaining an advantage, but those looking to purchase or refinance should prepare for a turbulent journey”.

Federal Reserve’s Stance

We can see the coming battle between President Trump and the Federal Reserve.

The Federal Reserve’s intention to maintain high interest rates could potentially stall a revitalization of the U.S. housing market, as higher borrowing costs will worsen inflation and make affordability a persistent challenge. The effect of extended rates is psychological too, with buyers becoming despondent and beginning to turn away from the “American Dream.”

Yun’s thoughts on interest rates and government spending are interesting. He’s suggesting DOGE cost-cutting won’t impact massive government spending and that rates can’t come down.  And lower taxes, deregulation, and full support of US business would obviously increase consumer and business spending — all leading to reignition of inflation.  It’s difficult to dispell these factors.  A plan to dismantle the FED is almost a certainty, but to abolish or significantly change it, Congress would need to repeal or amend the Federal Reserve Act.

According to Recent Mortgage Rate Forecasts:

• Fannie Mae projects the 30-year fixed mortgage rate to decline to 6.0% by the final quarter of 2025.
• Wells Fargo’s model anticipates rates to reach 5.8% by the end of 2025.
• The Mortgage Bankers Association estimates rates will drop to 5.5% in the same period.

Freddie Mac’s Rate Trend

This chart from Freddie Mac show a definite uptrend for mortgage rates despite an easing Fed rate.

These projections suggest a downward trend, though rates are likely to remain above pre-pandemic levels. The potential rate cuts are attributed to several factors:

• The Federal Reserve is expected to begin reducing interest rates, which could lead to less volatility in the bond market and a slight decline in mortgage rates.
• Inflation is projected to stabilize, potentially allowing for more accommodative monetary policy.
• Economic indicators such as rising unemployment and slowing wage growth may contribute to easing inflationary pressures, supporting rate cuts.

Housing Market Sales Projections

Zillow expects existing home sales will reach 4.3 million in 2025, up from the 4 million forecasted for the full year of 2024. This suggests a gradual recovery in sales volume over the next two years.

Lawrence Yun forecasts a 9% increase in existing home sales for 2025 and 13% for 2026.  For new home sales, Yun projects an 11% increase in 2025 and a further growth of 6% in 2026. After a strong period of housing completions, the sector has taken a nose dive. The next 3 months could see a decline in sales as the economy softens. Prices will likely decline in this time period.

Yun notes home prices and sales will vary nationwide including Los Angeles, Boston, Dallas, Denver, Chicago, and Miami from Florida to California.

Home Price Outlook

• NAR: 2025 median home price: $410,700; up 2% over 2024.
• NAR: 2026 median home price: $420,000, up 2% over 2025.
• Zillow: forecasts a 2.6% increase in home values for 2025
• Redfin predicts the median U.S. home-sale price to rise 4% higher to year end 2025.

Market Dynamics:  Supply and Demand

The current market is characterized by increasing inventory and rising demand for existing homes. In October 2024, existing home sales increased 2.9% YoY, making it the first annual uptick since 2021.

Interest Rates and Affordability

Mortgage rates are expected to remain uncertain, but projections might be a little on the high side. Housing economists might not be factoring in the Trump transition combined with a slowing economy. “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.” says Yun.

The average rate for a 30-year fixed mortgage recently stood at 6.84%. Redfin’s economists sees a mortgage rate around 7%, which means the expect no rate relief.

Zillow anticipates significant fluctuations throughout 2025, with potential refinancing opportunities during rate dips.

Demographic Factors

There’s a growing preference for smaller homes, with the term “cozy” appearing in 35% more Zillow listings compared to the previous year. With prices lofty and mortgage rates stubbornly high, affordability will remain an issue for most buyers, and renters are increasingly being left out of the  real estate wealth building process.

See a more thorough investigation of the US housing market forecast and for the 5-year forecast period.