Plunging Existing-Home Sales Reach Nine-Month Depth According to Kiplinger's Housing Forecast
U.S. Housing Market Faces Softening Trend in 2025
The U.S. housing market is bracing for a softening trend in 2025, as elevated mortgage rates, tariffs on construction materials, and ongoing affordability challenges take their toll.
Mortgage Rates Remain High
Stubbornly high mortgage rates are weighing on existing-home sales. The 30-year mortgage rates are predicted to remain relatively high, averaging about 6.7% in 2025 and ending near 6.4%. These elevated rates continue to reduce affordability for buyers, leading to a projected decline in existing home sales to a 30-year low—around 4 million transactions, the slowest since 1995.
Home Price Forecast
Zillow projects a 2% decline in U.S. home prices for 2025, reflecting increased inventory and subdued buyer demand. The rise in active listings gives buyers more bargaining power, but affordability pressures curb strong price growth. Meanwhile, Redfin notes prices are still high with some regional variation; supply constraints in parts of the Midwest and East Coast maintain seller leverage there.
Tariff Impact
Tariffs on essential construction materials such as lumber (especially from Canada), steel, and aluminum are raising building costs, which indirectly pushes home prices higher. These tariffs contribute to affordability issues by increasing the cost of new homes and adding economic uncertainty that dampens buyer confidence. The National Association of Home Builders confirms that these higher material costs are generally passed on to consumers.
Affordability Challenges
The combination of higher mortgage rates and increased construction costs reduces affordability, leading many potential buyers to delay purchasing and remain renters longer. This dynamic adds to inventory growth but suppresses robust demand and price increases.
Market Outlook
While some slight easing in mortgage rates toward the end of 2025 might improve affordability somewhat, significant improvements are unlikely. New home construction is expected to decrease slightly in 2025 due to cost pressures but may rebound later as economic uncertainty abates.
Current Trends
In June, the total inventory of existing homes on the market rose 15.9% from a year ago. At the current sales pace, the inventory of new homes would last 9.8 months. The S&P CoreLogic Case-Shiller U.S. National Home Price Index rose 2.3% in May from a year earlier, down from a 2.7% annual gain in the previous month. Total housing starts rose 4.6% in June, largely due to a 30% jump in multifamily starts.
Regional Trends
New York reported the strongest home price gains over the previous year, followed by Chicago and Detroit. However, homes prices in Tampa fell 2.4%, the weakest return in the 20 cities covered by the index. Existing-home sales fell 2.7%, to 3.93 million annualized units, in June. Meanwhile, new-home sales rose 0.6% in June to a seasonally adjusted annual rate of 627,000 units.
Inventory Levels
Single-family starts fell 4.6% in June. Single-family permits notched their fourth consecutive decline in June. On a month-over-month, seasonally adjusted basis, home prices fell 0.3%. Inventory is now at the highest level since May 2020.
Builders' Response
As mortgage rates remain elevated, builders have stepped up their use of mortgage rate buydowns and other incentives to soften the impact of higher rates. The decline in single-family permits indicates that builders continue to deal with high financing costs, elevated economic uncertainty, and unfavorable supply conditions due to the volatile U.S. trade policy under the Trump administration. This translates to 4.7 months of supply at the current sales pace, up from 4.6 months in May.
In summary, U.S. home prices are forecasted to mildly decline or remain flat in 2025, constrained by high mortgage rates and tariffs that increase construction costs. Affordability continues to challenge buyers, resulting in a slow market with low sales volumes and increased bargaining power for buyers in many regions.
[1] National Association of Realtors [2] National Association of Home Builders [3] Zillow [4] Redfin [5] Federal Reserve Bank of St. Louis
Investors in the housing market may find opportunities as elevated mortgage rates continue to reduce home sales, potentially leading to a larger supply of homes for sale. However, increased construction costs due to tariffs on materials like lumber, steel, and aluminum could contribute to continued pressure on affordability.
Given the projected decline in U.S. home prices, real estate investors might consider housing-market trend analysis from trusted sources such as Zillow, Redfin, the National Association of Realtors, and the National Association of Home Builders to make informed investment decisions and navigate the softened housing market.
