Housing Market Outlook: Brighter Days May Be Ahead

After two of the slowest years for home sales in recent memory, signs are pointing toward a housing market turnaround. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), shared a cautiously optimistic forecast during the “Residential Economic Issues & Trends Forum” at the 2025 NAR Legislative Meetings in Washington, D.C.

Yun highlighted that the U.S. housing market, which has faced its lowest existing home sales in three decades for two consecutive years, is poised for improvement. He believes that declining mortgage rates could be the key to unlocking greater market activity.

“We’ve had the lowest home sales in 30 years for two consecutive years,” Yun said. “But there’s a light at the end of the tunnel.”

Forecast: Growth in Sales, Slight Rise in Prices

According to Yun’s projections, existing home sales are expected to grow by 6% in 2025, with a stronger 11% gain predicted for 2026. New home sales are forecasted to increase by 10% this year and by another 5% the following year.

Meanwhile, home prices are expected to continue their upward climb though modestly with the median home price projected to rise 3% in 2025 and 4% in 2026.

Yun described mortgage rates as the “magic bullet” for market revival. He anticipates rates will average 6.4% during the second half of 2025 and drop to around 6.1% in 2026. These lower rates, if realized, could make homeownership more accessible for many potential buyers.

Supporting Signals: Rate Cuts, Inflation, and Employment

Several factors support this more positive outlook. Yun pointed out that inflation fell to 2.3% in April, getting closer to the Federal Reserve’s target of 2.0%. Shelter costs, a major component of inflation, have also started to ease. This trend could encourage the Fed to begin lowering interest rates, which would likely translate into lower mortgage rates.

Although the Fed recently revised its projections for the U.S. economy reducing 2025 GDP growth expectations from 2.1% to 1.7% and increasing the inflation forecast to 2.7% Yun emphasized that the overall economic foundation remains solid.

One of the most promising developments? Wage growth is currently outpacing inflation, with average earnings rising at a rate of 3.8%. In addition, job creation remains steady, offering more financial security to would-be homeowners.

More Buyers Ready to Act

Another encouraging indicator is a recent uptick in mortgage applications to purchase homes, suggesting that buyers are preparing to re-enter the market as borrowing conditions improve.

Renters also continue to express a strong desire to own homes. According to Yun, this shows that underlying demand remains healthy it’s simply being suppressed by affordability challenges. If rates decline and economic trends hold steady, many of these renters could soon transition into homeownership.

“Mortgage rates are the magic bullet,” Yun explained. “Once those come down, it will unlock demand.”

A Difficult Stretch, but Hope Ahead

Despite the difficulties of the past two years, including soaring borrowing costs and limited inventory, Yun believes that the worst may be behind us. With inflation cooling, rates expected to trend down, and consumer confidence gradually returning, the market is setting the stage for a more active and balanced housing environment.