Real Estate Outlook
By: Real Estate Hotline
Winter 2025 (Vol. 42, No. 4)
Overall, the National Association of Realtors (NAR) offers a cautiously optimistic outlook for the next two years. NAR is predicting a 9% increase in home sales predicted for 2025 and a 13% increase in home sales expected for 2026. This is contributed in most part to mortgage rates stabilizing and is expected to be greatly influenced by the effectiveness of job growth.
Mortgage rates are expected to stay around the 6% mark throughout 2025. The average 30-year fixed mortgage rate from Freddie Mac rose to 6.93% in January, 2025. At 6.93%, with 20% down, a monthly mortgage payment is $2,114 on a home with a price of $400,000. With 10% down, the typical payment would be $2,378. Despite the current affordability headwinds, there has been an increase in both pending and existing- home sales activity. Homeowners are making trades with housing equity gains, offsetting higher mortgage rates. However, with rates hitting a 6-month high, first-time buyers who are more rate-sensitive will feel the pinch.
NAR also anticipates that home prices will increase gradually in the coming years. Specifically, a 2% increase in median home prices in both 2025 and 2026. This moderate growth in home prices can be attributed to a combination of stabilizing demand from buyers, a gradual increase in housing supply, and persistent appreciation in home values over the long term.
NAR chief analyst, Lawrence Yun expects 2025 median home price to hit $410,700 which is an increase of 2% over 2024 and to modestly grow to $420,000 in 2026.
Yun emphasizes, as the market stabilizes, these slight increases in home prices reflect a steady recovery rather than a sudden spike, which is crucial to maintaining affordability in housing. Of course, keep in mind that price increases may vary regionally, depending on local economic conditions and the availability of homes.
We also may be moving closer to the end of the housing inventory shortage. As builders increase their output to meet demand, we can anticipate a gradual relief in supply constraints, which may lead to more competitive pricing in the housing market.
Buying instead of renting remains a compelling argument for long-term financial stability. As homeowners gain wealth through equity accumulation, renters lag behind overall. With more affordable options, this may be the time for first time buyers to jump in the market. Making the top rated affordable housing lists are up and coming hot spots: Madison, Wisconsin; Fargo North Dakota; Lincoln, Nebraska; Provo, Utah and New Haven, Connecticut.
CoStar Group, which specializes in real estate analytics and data information, forecasts that as the new apartment supply is absorbed, new data shows there will be an increase in rents in 2025 and 2026, ending the lower prices “many renters have had over the last couple of years as a result of the post-COVID multifamily supply glut.” They look at key indicators, such as the national vacancy rate and construction starts, that indicate a coming period of undersupply.
Jay Lybik, CoStar’s national director of multifamily analytics, pointed out that expected multifamily property completions for 2024 totaling 533,000 units were a 10% decrease from the 40-year high of 588,000 units in 2023. These numbers are expected to decrease even further in the next two years, with 2026 completion totals predicted at just 250,000 units. There is also a sharp decline in construction starts, from a high of 210,000 units starting construction in the first quarter of 2022 to 63,000 units two years later. If demand remains at current levels into 2026, the market could transition quickly from oversupplied to undersupplied, causing vacancy rates to drop swiftly and rent growth to accelerate above historical averages.
Q: Is is a buyer's or seller's market right now?
This is probably the most asked question for buyers and the answer depends on the location and it’s unique market circumstances. A buyer’s market occurs when there is more inventory than demand, giving buyers more leverage, while a seller’s market is when homes sell quickly due to high demand. Market conditions can vary according to region and even down to the exact neighborhood or street. Buyers will need to do their due diligence including consulting with a local expert.