NAR forecasts mortgage rates to stabilize near 6% in 2025, likely establishing a new normal. Inventory will gradually grow.

CHICAGO — The year ahead is poised to bring more opportunities for homebuyers as the housing market continues to stabilize. The Federal Reserve is expected to maintain a gradual approach to easing monetary policy in 2025. While concerns about federal deficits and rising public debt may cap the extent of those rate cuts, borrowing costs are anticipated to stabilize overall, offering some relief to prospective buyers.

However, mortgage rates are unlikely to return to the ultra-low levels seen during the pandemic or the pre-pandemic levels. Affordability will remain a concern for many, particularly in high-demand markets. The National Association of Realtors® forecasts mortgage rates to stabilize near 6% in 2025, likely establishing a new normal.

2025 NAR forecast: Existing home sales, 30-year fixed mortgage rate, housing starts

At this rate, more buyers are expected to come back to the market, boosting activity. When mortgage rates fall below 6.5%, the qualifying income required to purchase a median-priced home drops below $100,000, which is less than the estimated median family income. If rates stabilize around 6%, about 6.2 million households can once again be able to afford median-priced homes, compared to the current constraints with rates near 7%.

While housing shortages remain a long-term constraint, inventory levels are gradually improving and poised to increase further in 2025. This uptick is anticipated to result from a combination of new construction projects and homeowners deciding to list their properties, encouraged by stabilizing mortgage rates and improving market conditions. Lower rates can significantly benefit homebuilders by reducing financing costs and boosting market confidence. This is expected to lead to increased construction and housing starts approaching the historical average annual level of 1.5 million units in the next couple of years.

However, despite these gains, inventory levels are still expected to fall short of pre-pandemic norms, continuing to present challenges for buyers. Home prices will continue to increase in 2025, but at a slower pace compared to previous years, with increases likely to be around 2%.

Housing hotspots for 2025: Top markets amid stabilizing rates

While real estate is inherently local, each year NAR identifies markets expected to outperform based on key trends and metrics. While every year presents unique circumstances, the following 10 economic, demographic and housing factors are anticipated to be influential in shaping local housing markets as mortgage rates will stabilize in 2025. Therefore, top performing local markets should show:

1. Fewer locked-in homeowners than the national level

Why it matters: Homeowners with low mortgage rates from previous years hesitate to sell and take on higher mortgage rates, creating a “lock-in effect” that reduces housing inventory and activity in the market. Areas with fewer locked-in homeowners are likely to see more properties listed, increasing inventory and offering more opportunities for buyers.

2. Lower average mortgage rates than the national level

Why it matters: While mortgage rates differ by area, a lower mortgage rate enables more buyers to qualify for a mortgage, boosting housing demand. This can lead to increased home sales and market activity in the area, as lower rates reduce the financial burden of purchasing a home. If borrowers in an area can secure a lower mortgage rate, this could help more buyers to be able to qualify for a mortgage with smaller payments.

3. Faster job growth than the national level

Why it matters: Job growth drives economic stability and income increases, which are key factors for home affordability. Areas with faster job growth allow more people to set their sights into homeownership, further stimulating housing demand.

4. More Millennial renters who can afford to buy a home than the national level

Why it matters: Millennials represent a significant portion of first-time homebuyers. Areas where more Millennials can afford homes are likely to see increased demand, especially for entry-level and starter homes, boosting local activity.

5. Higher net migration to population ratio than the average level

Why it matters: Areas experiencing a strong influx of people also see increased demand for housing, as new residents require accommodations. This usually boosts activity in the area while also making home prices increase faster if supply doesn’t keep pace with demand.

6. More households reaching homebuying age in the next 5 years than the national level

Why it matters: Households in the 35-40 age group are a key demographic for homeownership. According to NAR’s 2024 Profile of Home Buyers & Sellers, the typical first-time buyer is 38 years old. Areas with a larger share of households entering this age bracket can expect stronger long-term demand for homes, affecting new construction and market stability.

7. More movers who purchase homes than the national level

Why it matters: A higher share of movers choosing to purchase homes indicates long-term growth and stability for the local housing market. While an influx of newcomers generally stimulates economic activity and boosts the housing market, those who choose to buy can bring even greater long-term benefits for the area. Their decision to invest in homeownership suggests people are there to stay, fostering a more stable and prosperous local market over time.

8. More homeowners surpassing the average length of tenure than the national level

Why it matters: Homeowners who have surpassed the average tenure (typically 16 years) are more likely to consider selling, increasing housing inventory. Areas with a larger share of these homeowners may see an uptick in listings, helping to ease supply constraints.

9. More inventory of starter-homes than the national level

Why it matters: Starter homes, typically priced at 85% of the median-priced home, are critical for first-time buyers. Areas with more starter-home inventory provide greater accessibility for younger or lower-income buyers, driving demand and creating a more affordable housing market.

10. Faster home price appreciation than the national level

Why it matters: Faster price appreciation reflects a strong local housing market with increased demand, generating wealth for homeowners, attracting investment, and providing resources for community developments.

Read the full report here.

© 2025 National Association of Realtors® (NAR)