NAR forecasts mortgage rates to stabilize near 6% in 2025, likely establishing a new normal. Inventory will gradually grow.
CHICAGO — The year ahead is poised to bring more opportunities for homebuyers as the housing market continues to stabilize. The Federal Reserve is expected to maintain a gradual approach to easing monetary policy in 2025. While concerns about federal deficits and rising public debt may cap the extent of those rate cuts, borrowing costs are anticipated to stabilize overall, offering some relief to prospective buyers.
However, mortgage rates are unlikely to return to the ultra-low levels seen during the pandemic or the pre-pandemic levels. Affordability will remain a concern for many, particularly in high-demand markets. The National Association of Realtors® forecasts mortgage rates to stabilize near 6% in 2025, likely establishing a new normal.
2025 NAR forecast: Existing home sales, 30-year fixed mortgage rate, housing starts
At this rate, more buyers are expected to come back to the market, boosting activity. When mortgage rates fall below 6.5%, the qualifying income required to purchase a median-priced home drops below $100,000, which is less than the estimated median family income. If rates stabilize around 6%, about 6.2 million households can once again be able to afford median-priced homes, compared to the current constraints with rates near 7%.
While housing shortages remain a long-term constraint, inventory levels are gradually improving and poised to increase further in 2025. This uptick is anticipated to result from a combination of new construction projects and homeowners deciding to list their properties, encouraged by stabilizing mortgage rates and improving market conditions. Lower rates can significantly benefit homebuilders by reducing financing costs and boosting market confidence. This is expected to lead to increased construction and housing starts approaching the historical average annual level of 1.5 million units in the next couple of years.
However, despite these gains, inventory levels are still expected to fall short of pre-pandemic norms, continuing to present challenges for buyers. Home prices will continue to increase in 2025, but at a slower pace compared to previous years, with increases likely to be around 2%.