Housing Market Outlook: Brighter Days To Come

The U.S. housing market has endured two of its toughest years in decades, but brighter days may be on the horizon, according to Lawrence Yun, chief economist for the National Association of Realtors (NAR).

Speaking at the “Residential Economic Issues & Trends Forum” during the NAR 2025 REALTORS Legislative Meetings in Washington, D.C., Yun predicted a rebound in home sales beginning this year, even though high mortgage rates have continued to weigh on the market.

“We’ve had the lowest home sales in 30 years for two consecutive years … [but] there’s a light at the end of the tunnel.”
—NAR Chief Economist Lawrence Yun

Existing home sales are expected to rise 6% in 2025 and accelerate by 11% in 2026, Yun forecasted. Meanwhile, new-home sales should climb by 10% this year and 5% next year. Median home prices will continue to rise, Yun predicted, and are projected to increase 3% in 2025 and 4% in 2026.

Mortgage rates, which Yun called a “magic bullet” for the market — at least when they’re attractive to potential buyers — are forecasted to average 6.4% in the second half of 2025 and dip to 6.1% in 2026. 

Yun is not alone in those predictions. Fannie Mae, for example, recently revised its outlook for the rest of 2025 and through 2026 to include lower mortgage rates, and more originations and home sales to accompany that. 

“The housing market remains very difficult at the moment,” Yun said. “Part of the delay in recovery is because the Federal Reserve has changed its outlook and appears to be on pause for a longer period.”

Indeed, the Fed recently downgraded its economic projections. In March, it reduced its 2025 GDP growth forecast from 2.1% to 1.7% and raised its inflation forecast from 2.4% to 2.7%.

“The fast ascent of mortgage rates has really hurt the real estate market,” Yun said. While many existing homeowners are holding onto low locked-in rates, higher borrowing costs have pushed monthly payments out of reach for many prospective buyers.

Yet Yun sees encouraging signs. Inflation edged down to 2.3% in April, not far off of the Fed’s 2.0% target, and shelter costs — a major driver of inflation — are trending downward. If and when inflation stabilizes, he expects the Fed to begin cutting rates, potentially helping unlock pent-up housing demand.

Meanwhile, wage growth is at 3.8%, outpacing inflation, and job growth remains strong. Yun also noted a recent uptick in mortgage applications to purchase homes and contended most renters still aspire to homeownership — a positive signal for future demand.

“Home sales have been very difficult over the past two years. We’ve had the lowest home sales in 30 years for two consecutive years,” Yun said, but added, “There’s a light at the end of the tunnel.”