Housing Market Unlikely to Thaw in 2025 Due to Affordability Challenges and 'Lock-in Effect'

Rhea-AI Summary

Fannie Mae's Economic and Strategic Research Group predicts challenging housing market conditions for 2025, with existing home sales expected to remain near 30-year lows. The forecast indicates mortgage rates will stay above 6% despite modest declines, with potential volatility creating temporary opportunities for homebuyers.

Key predictions include: deceleration in national home price growth, continued strength in new home construction where possible, and regional variations in market performance, with stronger activity expected in the Sun Belt region compared to supply-constrained areas like the Northeast. Notably, 2025 may see nominal wage growth outpacing home price growth for the first time in over a decade, potentially offering some relief to prospective homebuyers.

Positive

• Nominal wage growth expected to outpace home price growth for first time in over a decade
• New home sales projected to remain strong in certain markets
• Broader economy expected to expand at above-trend pace through 2026

Negative

• Mortgage rates forecasted to remain above 6% throughout 2025
• Existing home sales predicted to stay near 30-year lows
• Housing supply expected to remain below pre-pandemic levels
• Continued affordability challenges expected to hamper market activity

Fannie Mae Economists Share 5 Housing Market Predictions for New Year

WASHINGTON, Dec. 16, 2024 /PRNewswire/ -- Affordability and the so-called "lock-in effect" are expected to keep housing activity subdued in 2025, with existing home sales forecast to move only slightly upward from recent multi-decade lows, according to the December 2024 commentary from the Fannie Mae (OTCQB: FNMA) Economic and Strategic Research (ESR) Group. The broader economy is expected to remain on solid footing and expand at an above-trend pace through 2026 as it navigates elevated core inflationary pressures and heightened policy uncertainty.

As part of its latest outlook, Fannie Mae's economists shared five predictions for the housing market in 2025. They expect:

• Average mortgage rates will decline modestly but remain above 6 percent, with likely bouts of volatility.
• Existing homes sales will remain near 30-year lows, but location matters.
• New home sales will remain a bright spot in the housing market (where they can be built).
• National home price growth will decelerate.
• Multifamily housing will remain in a holding pattern.

"From an affordability perspective, we think 2025 will look a lot like 2024, with mortgage rates above 6 percent, home price growth easing from recent highs but staying positive, and supply remaining below pre-pandemic levels," said Mark Palim, Fannie Mae Senior Vice President and Chief Economist. "Still, heightened mortgage rate volatility may present opportunities for would-be homebuyers to take advantage of temporary lows, and we may see stretches where housing activity is boosted by lower rates — but, on average, we expect mortgage rates to remain elevated and a hindrance to activity. While we think conditions on a national basis will remain challenging, we're seeing meaningful regional differences in market conditions, and the homebuying experience — as the adage goes — will continue to be a local one. For example, in the Sun Belt, where construction has been robust for a few years and homebuilders are targeting first-time homebuyers with some offerings, we expect to see relatively strong housing activity. By comparison, we're not expecting to see the same in the supply-constrained Northeast. And while we foresee the current affordability crunch hampering activity through our forecast horizon, we expect nominal wage growth will outpace home price growth for the first time in more than a decade in 2025, slowly but surely providing some much-needed relief to potential homebuyers."

Visit the Economic and Strategic Research site at fanniemae.com to read the full December 2024 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae's Economic and Strategic Research Group, please click here.

Opinions, analyses, estimates, forecasts, beliefs, and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, beliefs, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, beliefs, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

About the ESR Group
Fannie Mae's Economic and Strategic Research Group, led by Chief Economist Mark Palim, studies current data, analyzes historical and emerging trends, and conducts surveys of consumer and mortgage lender groups to provide forecasts and analyses on the economy, housing, and mortgage markets.

About Fannie Mae
Fannie Mae advances equitable and sustainable access to homeownership and quality, affordable rental housing for millions of people across America. We enable the 30-year fixed-rate mortgage and drive responsible innovation to make homebuying and renting easier, fairer, and more accessible. To learn more, visit:
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https://www.fanniemae.com/news

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SOURCE Fannie Mae

FAQ

What are Fannie Mae's (FNMA) predictions for mortgage rates in 2025?

Fannie Mae predicts mortgage rates will decline modestly but remain above 6% throughout 2025, with periods of volatility expected.

How will existing home sales perform in 2025 according to Fannie Mae (FNMA)?

Existing home sales are forecast to remain near 30-year lows in 2025, with only slight upward movement expected.

What regional differences does Fannie Mae (FNMA) expect in the 2025 housing market?

Fannie Mae expects stronger housing activity in the Sun Belt region due to robust construction, while the supply-constrained Northeast is expected to see less activity.

Will home prices continue to rise in 2025 according to Fannie Mae (FNMA)?

Yes, but Fannie Mae forecasts that national home price growth will decelerate in 2025, with nominal wage growth expected to outpace home price appreciation.

How will housing affordability change in 2025 according to Fannie Mae (FNMA)?

Fannie Mae expects 2025's affordability conditions to mirror 2024, with high mortgage rates and positive but slower home price growth continuing to challenge buyers.