While participants in the National Association of Realtors’ Real Estate Forecast Summit are optimistic about the housing market in 2025, many of the same challenges that have slowed home sales the past two years are anticipated to remain in place. The affordability crisis may ease slightly if the Fed continues to cut the federal funds rate, but Lawrence Yun, chief economist of NAR, believes that even with an expected four to six rate cuts, mortgage rates are unlikely to dip below 6% in 2025.
High home prices and limited inventory led to a dramatic decline in first-time homebuyers to just 24% of all buyers in 2024, which is expected to continue in 2025. The median age of first-time homebuyers in 2024 rose to 38. And even repeat buyers are doing so at a later age, with a median age of 61, according to NAR research.
Still, Yun predicts that the worst is over for existing home sales. He expects existing home sales will be up 7% to 12% in 2025, and up 10% to 15% in 2026. Yun also anticipates that new home sales will rise 11% in 2025 and 8% in 2026. Yun predicts median home price growth of 2% for each of those years, and mortgage rates near 6% for both years.
Inventory is gradually anticipated to gradually improve over the next two years, particularly as buyers and sellers adapt to a stabilized 6% mortgage. Housing starts for single-family homes are up, which should ease housing shortages.
Employment to provide strong multifamily demand
A bright spot in the economy continues to be job growth. Yun anticipates jobs to increase by two million in 2025 and the same amount in 2026.
Job growth, which provides tailwinds for both multifamily rentals and home sales, has been particularly robust in about 20 states between March 2020 and October 2024. The six states with the highest percentage of job growth in that period include Idaho, Utah, Texas, Florida, Montana and Nevada, all of which experience gains of 10.1% to 13.9%. Job gains over that period in the next tier of states range from 5.08% to 9.8%. Those stated include Alabama, Arkansas, Arizona, Colorado, Georgia, Indiana, Kentucky, Missouri, Nebraska, North Carolina, Oklahoma, South Carolina, South Dakota and Tennessee.
Danielle Hale, chief economist of Realtor.com, expects income gains to improve in the coming years, along with job growth and a gradual increase in inventory of for-sale homes. However, she expects rents to stay flat, which will likely encourage more people to continue renting.
Michael Fratantoni, chief economist for the Mortgage Bankers Association, agrees with Hale’s forecast for relatively flat rent growth, which he sees as a further headwind for entry-level buyers. He doesn’t expect an increase in first-time homebuyers in the next year or two, in part because keeping an apartment with stable rent will decrease the desirability of buying.
Multifamily starts, which are down almost 30% in 2024, will stabilize in 2025, says Robert Dietz, chief economist for the National Association of Home Builders. He anticipates that demand for multifamily units will remain elevated.
Top 10 markets for home sales
NAR anticipates the strongest home sales in the 10 markets (listed in alphabetical order) below based on multiple factors, including job growth and the net migration to population growth, which can also create rental demand. Factors that impact home sales in these markets include the share of households reaching homebuying age in the next five years: the share of millennial renters who can afford to buy a home; the share of out-of-state movers purchasing a home; the share of starter-owner occupied units; home price appreciation, and either lower proportions of locked-in homeowners or lower mortgage rates.
- Boston-Cambridge-Newton, Massachusetts-New Hampshire
- Charlotte-Concord-Gastonia, North Carolina-South Carolina
- Grand Rapids-Kentwood, Michigan
- Greenville-Anderson, South Carolina
- Hartford-East-Hartford-Middletown, Connecticut
- Indianapolis-Carmel-Anderson, Indiana
- Kansas City, Missouri-Kansas
- Knoxville, Tennessee
- Phoenix-Mesa-Chandler, Arizona
- San Antonio-New Braunfels, Texas