The National Association of REALTORS® (NAR) forecasts a notable recovery for the U.S. housing market in 2025. According to Chief Economist Lawrence Yun, a combination of declining mortgage rates and an increasing supply of homes is expected to stimulate sales activity after a period of slower performance.
This anticipated shift suggests a more balanced market, potentially offering relief to buyers who have faced affordability challenges and limited options in recent years. The forecast is based on current data trends and economic indicators pointing toward a gradual normalization of market conditions.
Key Takeaways
- Increased Sales Expected: NAR forecasts a rise in home sales throughout 2025, driven by lower mortgage rates and more homes on the market.
- Affordability Remains a Concern: While conditions are improving, a shortage of affordable homes continues to challenge first-time and lower-income buyers.
- Midwest Leads Regions: The Midwest is identified as a top-performing region due to its relative affordability, with home prices significantly below the national median.
- Market Normalization: Key indicators, such as increased time on market, suggest a less frantic pace and more negotiating power for buyers compared to previous years.
Current Market Conditions Set the Stage
To understand the outlook for 2025, it is essential to examine the current state of the housing market. Lawrence Yun described recent years as “sluggish” for home sales, a trend largely attributed to two primary factors: elevated mortgage rates and a constrained housing inventory.
High borrowing costs have made monthly payments more expensive, pricing many potential buyers out of the market. Simultaneously, a limited number of available homes has created a competitive environment, further driving up prices. However, Yun notes that these pressures are beginning to ease, creating a more favorable setup for the year ahead.
Background: The Impact of High Rates
The period of high mortgage rates significantly slowed the housing market. Many existing homeowners with low-rate mortgages were hesitant to sell and move, a phenomenon known as the "lock-in effect." This reduced the number of homes for sale, contributing to the inventory shortage and keeping prices firm despite lower sales volumes.
The 2025 Forecast in Detail
The forecast from NAR points to a market in transition, moving toward greater stability and activity. The core of this optimistic projection rests on the dual forces of improving affordability and supply.
Key Drivers of the Expected Rebound
According to Yun, declining mortgage rates are the most critical factor. As borrowing becomes cheaper, more buyers will be able to qualify for loans, increasing the pool of potential homeowners. This is expected to directly translate into higher sales figures.
Alongside lower rates, an increase in housing inventory will provide buyers with more choices. A larger supply typically leads to less intense bidding wars and a more measured pace of price appreciation, creating a healthier market environment for all participants.
"Record-high housing wealth and a booming stock market are giving current homeowners more power," Yun stated, highlighting that this financial strength will particularly benefit the upper end of the market.
Diverging Trends in Market Segments
The recovery is not expected to be uniform across all price points. Yun's analysis suggests that the market for higher-priced homes will see considerable activity. Homeowners with significant equity and investment gains are in a strong position to "trade up" to more expensive properties.
Conversely, the affordable housing segment faces persistent challenges. Yun cautioned that the lack of inventory for starter homes and lower-priced properties will continue to hinder sales in this bracket. Even with more favorable interest rates, buyers cannot purchase homes that are not available.
August 2025 Market Snapshot
- Median Existing-Home Price: $422,600 (a 2.0% increase year-over-year)
- Unsold Inventory: 1.53 million units (an 11.7% increase year-over-year)
- Months' Supply: 4.6 months at the current sales pace
Regional Performance Highlights Affordability
Geographic location plays a significant role in housing market dynamics. Yun's forecast emphasizes the strong performance of the Midwest, which has emerged as a leader due to its more accessible home prices.
The Midwest Advantage
The data shows that the median home price in the Midwest is approximately 22% lower than the national median. This relative affordability has made the region a magnet for buyers, especially those who are priced out of more expensive coastal markets. In August 2025, the Midwest was the only region to see sales growth on both a monthly and yearly basis.
A breakdown of regional performance from August 2025 illustrates these disparities:
- Midwest: Sales increased by 2.1% month-over-month and 3.2% year-over-year. The median price was $330,500.
- South: Sales were down 1.1% month-over-month but up 3.4% year-over-year. The median price was $364,100.
- West: Sales rose 1.4% month-over-month but fell 1.4% year-over-year. It remains the most expensive region with a median price of $624,300.
- Northeast: Sales declined 4.0% month-over-month and 2.0% year-over-year. The median price was $534,200.
Key Data Points Shaping the Outlook
A closer look at the latest NAR report for August 2025 provides concrete evidence supporting the forecast. While total existing-home sales saw a minor dip of 0.2% from the previous month, they were up 1.8% compared to the same time last year, indicating underlying momentum.
Important Market Indicators
Several other metrics point toward a market that is rebalancing:
- Time on Market: Properties typically remained on the market for 31 days in August, up from 26 days a year prior. This gives buyers more time to make decisions and reduces market pressure.
- First-Time Homebuyers: This group accounted for 28% of sales, a slight increase from 26% the previous year, showing continued accessibility despite challenges.
- Cash and Investor Sales: All-cash sales made up 28% of transactions, while individual investors comprised 21%. These figures indicate continued confidence in real estate as an asset.
- Distressed Sales: Foreclosures and short sales represented only 2% of sales, a sign of a fundamentally healthy market with few forced sellers.
The average 30-year fixed-rate mortgage stood at 6.59% in August, down from 6.72% in July. The continued easing of these rates is the central pillar of the 2025 rebound prediction. A more favorable lending environment is expected to unlock pent-up demand from buyers who have been waiting on the sidelines.
