Key Takeaways
- Economists don’t expect much improvement in housing market conditions in the second half of the year.
- So far this year, high mortgage rates, soaring price tags and relatively low inventory have kept buyers from the market.
- There’s still a chance that the Federal Reserve could cut interest rates this year, which could help lower mortgage rates, relieving some of the high costs of homebuying.
After a sluggish few years for the housing market, economists hoped for a rebound in 2025. That hasn’t happened, and economists don’t expect much improvement for the remainder of the year.
“The housing market is frozen and it’s going to stay that way for the rest of 2025. There’s an affordability crisis that isn’t going away,” said Heather Long, chief economist at Navy Federal Credit Union. “The encouraging news is the second half of 2025 should lay the foundation for a real estate thaw in 2026.”
What’s Wrong with the Housing Market
A familiar set of issues has frozen the housing over the past few years.
Home sales volume has been near a 30-year low, partly due to high mortgage rates. Steep borrowing costs have kept buyers on the sidelines and sellers locked into homes they financed with low interest rates.
Home prices are also hampering sales. Prices continue to push higher, hitting records in recent months. And while inventory has recovered from its recent depths, there are still relatively few homes on the market, which continues to put upward pressure on prices.
“Buying activity remains muted amid elevated mortgage rates and the poorest affordability in decades,” wrote Priscilla Thiagamoorthy, senior economist at BMO. “Housing market conditions are likely to stay subdued unless prices come down and/or mortgage rates drop.”
Small Signs of Improvement
However, there are signs that some small improvements could be on the way.
There are more listings on the market, giving buyers more options. National Association of Realtors data showed that the number of home listings in May was up by more than 20% from a year ago.
And while home prices continue to rise, the pace of those increases is slowing. Indeed, in some areas such as Tampa and Dallas, home prices are even declining. The S&P CoreLogic Case-Shiller home price index showed that prices in April were up 2.7% year-over-year, a slowdown from March’s price increases.
“While more supply and softer price appreciation may help matters, a tough affordability environment is likely to persist,” wrote Wells Fargo economists Charlie Dougherty, Jackie Benson and Ali Hajibeigi. “A dramatic decline in prices seems unlikely, and underlying demand looks strong enough to maintain positive home price appreciation over the next several years.”
A Lot Depends on Mortgage Rates
Home buyers are also likely to see an improvement in borrowing costs, especially if the Federal Reserve cuts interest rates later this year. Wells Fargo and other economists projected that interest rates could come down from current levels of about 6.7% to around 6.5% by the end of the year.
“Mortgage rates will be a little lower, 6%, 6.5%, being the new normal, and that will bring more buyers into the market,” said NAR Chief Economist Lawrence Yun. “The current market conditions are difficult, but once the mortgage rate comes down, renters can translate their aspirations into the reality of homeownership.”
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