
Historic in-town homes are in high demand, with little supply in Ann Arbor, Ypsilanti, and surrounding towns.
As we transition into 2025, the housing market continues to grapple with challenges that have persisted throughout 2024. Fannie Mae’s Economic and Strategic Research (ESR) Group provides insights into the anticipated trends for the coming year, highlighting factors expected to shape the real estate landscape. This article provides highlights from the Fannie Mae 2025 Housing Outlook with a look at key trends in home prices, mortgage rates and sales.
Read the complete report: Fanie Mae’s 5 Housing Market Predictions for 2025 for more details; loaded with economic, housing and mortgage information.
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1. Mortgage Rates: Modest Decline with Continued Volatility
The ESR Group forecasts that average mortgage rates will remain above 6% in 2025. Persistent inflation and a stabilizing job market have tempered expectations for significant interest rate reductions. Unless there is a marked slowdown in economic growth, mortgage rates are projected to decrease slightly, approaching 6% by the end of 2025. However, factors such as economic resilience, inflation persistence, and potential policy changes may contribute to fluctuations in mortgage rates throughout the year.
2. Existing Home Sales: Modest Improvement Yet Historically Low
Existing home sales are expected to total 4.25 million in 2025, reflecting a 4.8% increase from the estimated 4.06 million in 2024. Despite this improvement, sales remain approximately 20.3% lower than in 2019. The limited recovery is attributed to ongoing affordability challenges and the “lock-in effect,” where homeowners with low mortgage rates are disinclined to sell and re-enter the market at higher current rates.
3. New Home Sales: Regional Variations Influence Growth
The new home market is anticipated to be a bright spot, particularly in regions conducive to construction, such as the Sun Belt and Mountain West. Of the approximately 750,000 single-family housing permits issued year-to-date through October 2024, 20% were concentrated in metropolitan areas like Houston, Dallas, Phoenix, Atlanta, and Charlotte. This trend is expected to continue, with significant homebuilding activity in these regions throughout 2025.
4. Home Price Growth: Deceleration Expected
National home price growth is projected to decelerate, with an estimated year-over-year increase of 3.6% in 2025, down from 5.8% in 2024, as measured by the Fannie Mae Home Price Index. While mortgage rates will continue to pose affordability challenges, the slowing of home price appreciation may allow nominal wage growth to surpass home price growth for the first time since 2011, gradually improving homebuyer affordability conditions.
5. Multifamily Housing: Stability Amidst Challenges
The multifamily housing sector is expected to remain stable in 2025, mirroring trends from 2024. Long-term demographic factors support multifamily construction; however, below-average rent growth is anticipated in the near term due to the completion of additional units. Rent growth is projected to be between 2% and 2.5% in 2025, providing some relief to renters and contributing to a gradual improvement in affordability.
In summary, while certain segments of the housing market may experience modest improvements in 2025, overarching challenges such as affordability constraints and limited inventory are likely to persist. Stakeholders should remain informed and adaptable as the market continues to evolve.