Persistent economic pressures slow housing momentum, but outlook improves
The swift ascent of mortgage rates has significantly hindered the US housing market, according to Lawrence Yun, chief economist for the National Association of Realtors® (NAR). Speaking at the REALTORS® Legislative Meetings Economic Forum on June 3, 2025, Yun offered an outlook on the real estate landscape, highlighting both current challenges and signs of potential recovery.
“The housing market remains very difficult at the moment, as you know,” Yun told an audience of real estate professionals. He attributed part of the delayed recovery to the Federal Reserve’s adjusted outlook, noting, “Part of the delay in recovery is because the Federal Reserve has changed its outlook and appears to be on pause for a longer period.”
Yun pointed to the disparity in market experience between existing homeowners and prospective buyers. “Your past clients are all happy,” he explained. “But for new home buyers, their monthly payment obligation has increased, and this is what’s killing the housing market. Mortgage rates are the magic bullet, and we’re waiting and waiting until those come down.”
Inflation and the cost of shelter
The Federal Reserve’s economic forecasts have also seen adjustments. While in 2024, the Fed projected a 2.1% increase in gross domestic product and 2.4% inflation, these figures were downgraded in March 2025 to a 1.7% rise in GDP and a 2.7% inflation forecast.
Despite these hurdles, Yun provided projections for a gradual rebound. He forecasted existing home sales to increase by 6% in 2025 and by 11% in 2026. New-home sales are expected to rise by 10% in 2025 and 5% in 2026. The median home price is projected to climb by 3% in 2025 and 4% in 2026. Mortgage rates are anticipated to average 6.4% in the second half of 2025 and 6.1% in 2026.
Yun also addressed the inflation picture, noting that the inflation stood at 2.3% in April, slightly above the Federal Reserve’s implicit target of 2.0%. “We’re not there yet, but we’re very close,” he stated, indicating that “The Fed will cut interest rates once inflation is fully under control.”
He emphasized the significant role of shelter costs in inflation figures. “The shelter component is the biggest weight to the price component,” Yun explained. “The shelter cost is already coming down from its recent cyclical peak, and it’s trending downward.”
Looking at broader economic indicators, Yun highlighted that the US has experienced stronger job growth since its pre-pandemic highs in 2020, with wage growth (3.8%) outpacing the consumer price index (2.3%).
While acknowledging the difficulties— “Home sales have been very difficult over the past two years. We’ve had the lowest home sales in 30 years for two consecutive years”—Yun expressed optimism for the future. “There’s a light at the end of the tunnel based on recent rises in mortgage applications to buy a home,” he said. He added, “Moreover, a solid majority of renters expressed desire to own a home.”
What are your thoughts on how have rising rates impacted the plans of new homebuyers? Share your insights in the comments below.
