The U.S. housing market is poised for a gradual recovery in 2025, according to Lawrence Yun, Chief Economist for the National Association of REALTORS® (NAR). After a period of slow sales activity, a combination of easing mortgage rates and an expanding inventory of available homes is expected to stimulate market growth throughout the upcoming year.
Yun's forecast suggests a market that is finding a new balance, moving away from the rapid price escalations of recent years toward a more sustainable pace. While challenges related to affordability persist, the overall outlook indicates improved conditions for both buyers and sellers.
Key Takeaways
- Increased Sales Activity: Home sales are projected to rise in 2025, driven by declining mortgage rates and more homes for sale.
- Affordability is Key: Regions with lower home prices, such as the Midwest, are expected to continue outperforming more expensive markets.
- Inventory Growth: The number of homes on the market has increased significantly compared to the previous year, giving buyers more options.
- Price Moderation: While home prices continue to rise, the rate of appreciation has slowed, indicating a market shift toward stabilization.
A Look Ahead to the 2025 Housing Market
Lawrence Yun's analysis points to a housing market transitioning from a period of sluggishness into one of measured growth. The primary factors fueling this optimistic forecast are twofold: the anticipated decline in mortgage rates and a healthier supply of homes on the market.
For several years, high borrowing costs and a limited number of listings created significant headwinds for potential buyers. However, recent trends suggest these pressures are beginning to ease, setting the stage for a more active 2025.
The Role of Mortgage Rates
Mortgage rates are a critical driver of housing affordability. Even a small decrease in rates can lower a buyer's monthly payment by hundreds of dollars, expanding their purchasing power and making homeownership accessible to a wider pool of applicants. The forecast for 2025 hinges on this continued downward trend.
High-End Market Strength
The upper end of the housing market is expected to show particular strength. Yun notes that many current homeowners have accumulated substantial housing wealth due to years of price appreciation. This, combined with a strong stock market, provides significant equity that can be leveraged for a move-up purchase.
This financial empowerment among existing homeowners is likely to drive activity in the luxury and premium property segments. These buyers are often less sensitive to moderate shifts in interest rates and more influenced by their overall wealth portfolio.
The Persistent Affordability Challenge
Despite the positive outlook, significant challenges remain, particularly at the lower end of the market. The availability of affordable, entry-level homes continues to lag behind demand. Yun highlights that this lack of inventory is a major barrier for first-time homebuyers and those with modest incomes.
"Sales of affordable homes are being held back by the lack of inventory. Even with lower interest rates, if there aren't enough starter homes or well-priced options, buyers in this bracket will continue to face difficulties."
Even as market conditions improve overall, addressing the shortage of affordable housing stock will be crucial for a truly balanced and accessible market in 2025 and beyond.
Current Market Snapshot: Analyzing the Data
To understand the projections for 2025, it is essential to examine the most recent data. The NAR's Existing-Home Sales Report from late 2025 provides a detailed look at the market's current state and offers clues about its future direction.
August 2025 Existing-Home Sales
- Year-Over-Year Sales: Increased by 1.8%.
- Unsold Inventory: Rose by 11.7% from the previous year, reaching 1.53 million units.
- Median Home Price: Climbed 2.0% year-over-year to $422,600.
- Housing Supply: Stood at a 4.6-month supply at the current sales pace.
While month-over-month sales saw a minor dip of 0.2%, the year-over-year increase is a more significant indicator of the market's underlying momentum. The substantial rise in inventory is particularly noteworthy, as it signals more choices for buyers and a potential easing of the intense competition seen in previous years.
Single-Family Homes vs. Condominiums
The data reveals different trends between property types. Sales of single-family homes increased by 2.5% compared to the previous year, with the median price rising 1.9% to $427,800. This indicates sustained demand for traditional detached houses.
In contrast, sales of condominiums and co-ops fell by 5.1% year-over-year. Although their median price saw a modest increase of 0.6% to $366,800, the decline in sales volume suggests that buyer demand in this segment is not as robust, possibly reflecting shifting lifestyle preferences.
Regional Disparities Highlight Affordability's Impact
The U.S. housing market is not uniform; performance varies significantly from one region to another. Recent data strongly supports Yun's assertion that affordability is the primary factor driving regional success.
The Midwest Leads the Nation
The Midwest has emerged as the country's best-performing housing market. In August 2025, sales in the region increased by 3.2% year-over-year, the strongest growth in the nation. The reason for this is clear: value.
The median home price in the Midwest was $330,500, which is 22% below the national median price. This relative affordability makes the region an attractive destination for buyers who are priced out of more expensive coastal markets.
A Tale of Four Regions (Year-over-Year Sales Change)
- Midwest: +3.2%
- South: +3.4%
- Northeast: -2.0%
- West: -1.4%
The data shows a clear divide, with the more affordable Midwest and South seeing sales growth, while the pricier Northeast and West experienced declines.
The West remains the most expensive region, with a median price of $624,300. This high cost continues to act as a barrier to entry for many potential buyers, contributing to its slower sales activity compared to the previous year.
Key Indicators for Buyers and Sellers
Several other metrics provide insight into the evolving market dynamics that will shape 2025. These indicators suggest a shift toward a more balanced environment where buyers may have slightly more leverage.
Time on Market Increases
Properties in August 2025 spent a median of 31 days on the market. This is an increase from 28 days in the prior month and 26 days in the same month last year. A longer selling time indicates that the market is becoming less frantic, allowing buyers more time to consider their options and conduct due diligence without the pressure of immediate bidding wars.
Steady Presence of First-Time Buyers
First-time homebuyers accounted for 28% of sales, a slight increase from 26% a year ago. While this group still faces significant hurdles, their consistent participation demonstrates that entry into homeownership remains achievable, particularly as market conditions slowly improve.
Additionally, cash sales made up 28% of all transactions, indicating that many buyers are still able to bypass financing. Distressed sales, such as foreclosures, remained at a historic low of just 2%, signaling a fundamentally healthy market with very few forced sellers.
