The past three years have been tough for many Americans navigating the housing market. Stubbornly high mortgage rates, rising rents and a lack of affordable housing have contributed to fewer home sales and rising homelessness. 2025 might not look much different, experts say.
Sales of previously occupied homes hit a nearly a 30-year low in 2024, the National Association of Realtors reported last month. At the same time, a CNN poll last year found 86 percent of Americans who were renting said they would like to buy their own home but could not afford to do so. Economists estimated the U.S. had a housing shortfall of as many as 5 million homes in 2023.
Housing was a key issue for voters in the November election that returned President Donald Trump to power. On the campaign trail, Trump connected the housing crunch to his top policy issue, immigration, saying it was “driving housing costs through the roof.” Experts say the effects are far more moderate than the Republican president has claimed.
The Biden administration connected a rise in homelessness in 2024 in part to a surge in migrants across the U.S., but also to the high cost of housing and an onslaught of natural disasters, such as the Maui wildfires. According to the Department of Housing and Urban Development’s annual snapshot last January, the number of people experiencing at least a single night without a home had increased year-over-year by 18 percent.
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The beginning of 2025 brought fresh pain to residents in Southern California, where wildfires have exacerbated an already stressed and expensive market and worsened the state’s insurance crisis.
Trump has promised action to bring down housing costs through tax incentives, cutting regulation to encourage development and making land available for the building of homes. But analysts and industry groups say some of his policies, such as imposing tariffs on steel and aluminum, may be counterproductive.
Here’s a snapshot of what experts expect to see in the housing market this year.
What will happen to mortgage rates?
Many prospective home-buyers hoped mortgage rates would follow the Federal Reserve’s interest rate cuts last year. They did not.
That’s very unusual, said Brian Blank, associate professor of finance at Mississippi State University, but “it’s less surprising than maybe the average person would think.”
The interest rate set by the Fed applies to short-term borrowing, while mortgage rates are linked to 10-year Treasury rates, which are influenced by a number of factors, including uncertainty around the economy and inflation.
Blank said that lenders are using the interest rate and charge “an additional premium for this risk because the risk might be larger, or it’s just more difficult to measure today than it might have been a few years ago.”
Mortgage rates had begun to come down last year, starting in May. But they reversed course in September, said Chen Zhao, head of economics research for Redfin, with the prospect of a Trump presidency and tariff-fueled inflation.
For the housing market, mortgage rates make “a huge difference,” Zhao said.
Higher mortgage rates can drive up the cost of borrowing and repayment. Let’s say you’re buying a house for $420,000, which is approximately the median home sales price in the U.S. A single percentage point increase can raise your monthly payment by hundreds of dollars a month.
“There’s a lot of big-picture changes that are happening with the Fed, with fiscal policy coming from the [Trump] administration,” Zhao said. “So there will be a good amount of mortgage rate volatility.”
Zhao said that mortgage rates are likely to stay high in 2025, probably “bouncing around” 7 percent for the year.
What will the real estate market look like in 2025?
When it comes to buying or selling a house, “2025 is going to look a little like 2024,” Zhao said.
Home prices are expected to go up by about 4 percent on average, a small shift in line with recent years, due to not much changing in either the supply of new homes or demand from buyers.
“Supply will still be restricted,” Zhao said. “Demand will be similarly low to what we have been seeing in this high mortgage-rate environment.”
Of course, what’s going on in your ZIP code might be different than another neighborhood across the country.
“From place to place, there’s gonna be significant variation,” Zhao said.
While house prices increased last year in the Northeast and California, in some places, particularly in the Sun Belt from Florida to Texas, prices actually dropped.
Zhao said “almost no one experiences” a national average given how influenced housing is by local and regional factors.
In areas with already high prices that will likely “slightly increase,” buying a house “certainly does not feel like it’s going to be much easier,” she said.
Zhao said Trump’s tariffs are likely to keep home prices high by driving inflation and increasing the cost of building materials. Mass deportations of immigrants could create labor shortages in the construction industry; more than a quarter of workers in construction jobs are foreign-born, according to 2023 census data.
Other Trump policy proposals, such as loosening regulations and creating incentives for construction, could push them down. The National Association of Home Builders, a construction lobbying group, says that as much as 25 percent of the cost of a single-family home is due to regulations. Experts warn, however, that the effects of regulations on housing construction are complicated and often outside the control of the federal government.
Zhao said that even though “you’re getting … a lot of rhetoric at the national level from the incoming administration saying, ‘We want to make it easier to build,’” Trump’s influence is limited compared to the potential impact of state and local efforts.
“The problem is that there’s not a lot of levers the federal government can pull to actually make that happen,” Zhao said.
“What you need is a lot of local jurisdictions to make it easier to build,” Zhao said.
Key factors like zoning rules and property taxes are set at the local level. Some state legislatures, including that of California, home to some of the highest housing costs in the country, have moved to overrule local zoning laws in order to build more affordable and multi-unit housing. But resistance from homeowners can be fierce.
Local jurisdictions “have to deal with actual homeowners, who are worried about the values of their existing homes,” creating a conundrum that’s hard to fix, Zhao said.
What’s the forecast for renters?
Rental prices are expected to drop or stay the same in some places due to more multi-family buildings on the market, though Zhao says new constructions are slowing.
“There’s a flood of inventory from the pandemic building boom and lots still in the pipeline with rents largely flat. Multi-family units under construction have come down from the historic highs hit in summer 2023 as builders are starting fewer projects,” she said.
Although the Census Bureau doesn’t track new projects by region, Zhao added, “it looks like, in general, that construction is falling in the South and West, but growing in the Northwest and Midwest.”
Much of the Northeast, where rents are already high, will see prices increase. Vince Wang, a research fellow at Grounded Solutions Network, said people already struggling to find affordable housing will be most affected.
“Across the income spectrum, the affordability crisis will get worse,” Wang said, adding that lower-income households and people of color will be disproportionately affected.
Access to low-income housing may also be affected by changes in federal agencies, where Trump and his billionaire adviser Elon Musk have been slashing jobs. The union representing workers at the Department of Housing and Urban Development estimates that up to 50 percent of its staff could be fired, fueling concerns that funding for housing assistance, including programs to alleviate homelessness, will not be distributed.
The impacts of climate change and natural disasters can also affect rents. Wang expects rental prices to drop or hold steady in the West with one major exception: Los Angeles, where fires destroyed or damaged more than 16,000 homes in January.
While the homes destroyed represent just a small proportion of the total number in Los Angeles, the shortage may still lead to increased competition in an already tight market, raising rental prices even more.