Last month, Fannie Mae released its report 5 Housing Market Predictions for 2025.  In short, the organization expects many trends and challenges from 2024 to continue in the new year.  These predictions are summarized below, but if you’d like to request the complete report, email Michael Gorman at [email protected].

1. Mortgage rates will decline but will remain above 6%.

Fannie Mae predicts that economic growth, employment gains, and inflation will slow in 2025, but inflation will not drop to the Fed’s target rate until 2026.  Together, these will keep 30-year fixed mortgage rates above the 6% level during the year.

It is our view that sub-6% rates are necessary to overcome the mortgage rate “lock-in effect” where homeowners are unwilling to give up low mortgage rates despite a need or desire to move to a different home.  As of September 2024, 58% of Fannie Mae’s loans had a 30-year fixed mortgage rate under 4%.  Hence, we will not yet experience meaningful relief from today’s tight housing inventory as homeowners remain in their existing properties (with their low rates).

2. Existing home sales will remain near 30-year lows.

Existing home sales are expected to increase 4.8% from 2024, but this is still down 20.3% compared to 2019.  This is due to the “lock-in effect” mentioned above along with highly constrained housing affordability conditions.

Regional variation is expected, with recent homebuilding loosening markets in the Sun Belt, Mountain West, and Pacific Northwest.  By contrast, the Midwest and Northeast (including the Washington DC area) are expected to remain tight.

3. New home sales are a bright spot (in certain places).

Despite the drop in existing home sales from 2019, new home sales rose 15% since then.  Fannie Mae expects this pace to continue in 2025.  However, the impact will be regional, and will depend upon where land and zoning enable homes to be built.  Building permit issuance in 2024 indicates that Houston, Dallas, Phoenix, Atlanta and Charlotte will lead homebuilding activity.

Fannie Mae also reports that homebuilders have adjusted to the market, offering incentives to buy down mortgage rates and building smaller homes to increase affordability.

4. National home price growth will decelerate.

Fannie Mae predicts 2025 year-over-year price growth to be 3.6% compared with the 5.8% price growth experienced in 2024.  This will potentially enable wage growth to exceed home price growth, slightly improving home affordability.  However, regional differences in homebuilding will cause home price growth to vary across metropolitan areas.

5. Multifamily housing will remain in a holding pattern.

Demographic trends are supportive of multifamily construction as the prime renter-aged population grows.  Rent growth is expected to be between 2% and 2.5% in 2025 – a below-average rate due to the completion of new multifamily units.  As with single family homes, rental affordability should increase as wage growth is likely to outstrip 2025 rent growth.

In the longer term, development of new multifamily construction projects is likely to decline due to the slow rent growth combined with higher interest rates.

Contact us to get the full report.

The full Fannie Mae report, which includes the organization’s 2025 economic forecasts, is available via email with no cost or obligation.  Simply send a request to [email protected].

And if you have real estate needs…

RealtyPeople provides buyers and sellers with full-service representation at low commission rates of $500 plus 1% of transaction price.  We help buyers make their purchase money go further, while maximizing sales proceeds for sellers.  

Contact Michael Gorman at [email protected] for a no-obligation consultation.