Lawrence Yun: Housing Market Still Struggling, But Recovery Is on the Horizon

The housing market continues to face headwinds, but signs of a gradual recovery are emerging. That was the key message from Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), during his presentation at the 2025 REALTORS® Legislative Meetings’ Residential Economic Issues & Trends Forum.

Yun acknowledged that the current real estate landscape remains challenging for buyers and sellers alike. However, he shared a cautiously optimistic forecast, projecting that existing home sales will rise by 6% in 2025 and another 11% in 2026.

“It’s still a very difficult environment,” Yun said. “But we’re starting to see early signs of progress, and there’s reason to believe things will improve.”

Economic Forecast: Mortgage Rates and Home Sales Set to Improve

Yun predicts that mortgage rates will average 6.4% in the second half of 2025 and decline slightly to 6.1% in 2026. He also expects new home sales to climb 10% in 2025 and grow by an additional 5% the following year. As for home prices, Yun estimates a 3% increase in 2025 and 4% in 2026.

While the outlook is improving, higher mortgage rates have clearly taken a toll.

“Homebuyers are dealing with much larger monthly payments than they were a few years ago,” Yun noted. “And that’s been the biggest obstacle in the market affordability has taken a hit.”

Fed Policy and Inflation Remain Major Factors

Much of the slowdown, according to Yun, stems from the Federal Reserve’s prolonged pause on rate cuts. In March, the Fed downgraded its GDP forecast for 2024 to 1.7% (down from 2.1%) and raised its inflation projection to 2.7% (up from 2.4%).

“We were expecting rate relief sooner,” Yun said. “But with inflation still above target, the Fed is holding off, and that’s prolonging the housing slump.”

However, Yun emphasized that housing costs themselves are a major driver of inflation, not just broader economic conditions.

“Everyone’s talking about tariffs and supply chains,” he said. “But we also need to look at housing. Shelter costs are the single biggest contributor to inflation and those are finally starting to ease.”

Rising Wages and Job Growth Offer Hope

Despite market pressures, Yun highlighted several encouraging economic indicators. He noted that job growth has rebounded strongly since 2020, and wages are rising faster than inflation. While the Consumer Price Index rose by 2.3%, average wages grew by 3.8%.

“Real income is improving, and that’s important for long-term housing demand,” he explained.

Yun also pointed out that although home sales have hit their lowest levels in three decades over the past two years, recent data shows a modest increase in mortgage applications a sign that buyer interest may be returning.

Homeownership Dream Still Alive

Another encouraging trend: most renters still aspire to own a home. According to surveys referenced during the session, the desire for homeownership remains strong, even among those facing affordability challenges.

“People still want to buy homes,” Yun said. “They’re just waiting for the right time and that time may be coming sooner than we think.”

Bottom Line:
While high mortgage rates and affordability constraints continue to weigh on the housing market, NAR’s Lawrence Yun remains cautiously optimistic. With inflation easing, wage growth rising, and buyer interest beginning to pick up, the groundwork may be in place for a slow but steady rebound in housing activity over the next two years.