The U.S. housing market is undergoing a fundamental shift as it heads into the final quarter of 2025. Potential homebuyers are gradually moving past a 'wait-and-see' approach, beginning to accept that mortgage rates hovering around 6% may be the new standard. This adjustment in buyer psychology is unfolding against a backdrop of major industry consolidation and persistent affordability challenges that new zoning laws have yet to solve.
According to economist Matthew Gardner, the market is defined by a growing sense of adaptation rather than anticipation of a significant drop in either prices or borrowing costs. While uncertainty remains the primary risk, early signs suggest a more active market could emerge in 2026 as buyers and sellers recalibrate their expectations.
Key Takeaways
- Buyer sentiment is shifting from waiting for lower rates to accepting current mortgage rates as the long-term reality.
- Major brokerage consolidation, like the Compass-Anywhere deal, is more about strategic market capture than a trend of accelerating mergers.
- Zoning reforms aimed at increasing housing supply have not yet produced a tangible impact on affordability due to high construction costs.
- First-time homebuyers continue to struggle, making up a historically low 28% of the market.
- The biggest risk heading into 2026 is general uncertainty, which is causing many potential buyers and sellers to remain on the sidelines.
Consolidation Reshapes the Brokerage Landscape
The real estate industry has been marked by significant merger and acquisition activity this year, prompting questions about the future for agents and consumers. The recent deal combining Compass and Anywhere created a powerhouse with over 90,000 agents, highlighting a trend toward large-scale operations.
However, experts believe this wave of consolidation may be slowing. "I wonder how it can accelerate, because who’s got any scale left?" noted economist Matthew Gardner. He suggests future deals are likely to be more strategic, focusing on specific geographic areas or niche markets like luxury properties rather than massive national mergers.
The driving forces behind these deals are clear: gaining market share, improving operational efficiency, and, most importantly, leveraging technology. Larger firms can offer sophisticated digital platforms that are attractive to agents and can streamline the client experience.
Boutique vs. Behemoth
While large firms offer technological advantages and greater resilience to market volatility, smaller boutique brokerages are positioning themselves as providers of a more personalized, high-touch service. This creates a dual market where consumers can choose between the scale of a national brand and the bespoke experience of a local independent firm.
This consolidation presents both challenges and opportunities. Independent brokerages face increased competition and pressure on profitability. Yet, the emphasis on scale by larger companies creates a distinct value proposition for smaller firms that can highlight their local expertise and client-centric approach.
Buyers Adapt to Higher Mortgage Rates
For more than a year, many would-be homebuyers remained on the sidelines, waiting for one of two things to happen: a significant drop in mortgage rates or a crash in home prices. Neither has materialized.
"If they were looking at either path, they’re probably still sat on the fence waiting," Gardner explained. Now, a psychological shift is underway. Buyers are beginning to accept that the era of 3% mortgage rates is over, and the new normal will likely involve rates seesawing between the high-fives and low-sixes.
This acceptance is leading to a recalibration of expectations. Instead of waiting, buyers are re-evaluating what they can afford under current conditions. In response, sellers are becoming more flexible, with concessions like rate buydowns and discount points becoming more common to close deals.
First-Time Buyer Struggles
Affordability remains a major hurdle, especially for new entrants. First-time homebuyers now account for just 28% of the market, according to the National Association of Realtors. This is just slightly above the all-time low of 26% recorded in early 2024, underscoring the difficulties faced by those without existing home equity.
Some buyers are exploring creative financing, such as Adjustable-Rate Mortgages (ARMs), with the hope of refinancing in the future. There is also potential for an increase in seller financing, given that an estimated 30 million homes in the U.S. are owned outright with no mortgage.
Zoning Reform Is Not a Quick Fix
In an effort to tackle the housing supply crisis, several states, including Washington, Oregon, California, and Montana, have enacted significant zoning reforms. These changes are designed to encourage density through measures like allowing duplexes on single-family lots and streamlining the approval process for Accessory Dwelling Units (ADUs).
While these legislative efforts are a step in the right direction, they have yet to make a meaningful dent in the housing shortage. "It’s not going to be a panacea. It’s not going to solve all our housing woes," Gardner cautioned. He pointed out that it is still too early to see a clear trend in the data.
"It’s nice to see efforts being made, but we’ve yet to really see that move into a more tangible change to the marketplace in terms of adding new supply."
For example, in Seattle, a city at the forefront of these reforms, only about 260 detached ADUs and 250 attached ADUs have been permitted year-to-date. These numbers are too small to impact city-wide affordability.
The primary obstacle remains the high cost of construction. Persistently expensive materials and labor mean that even with relaxed zoning, building new, affordable units is a significant financial challenge. This reality limits the immediate impact of policy changes on the overall housing supply.
Uncertainty Looms as Biggest Market Risk
Looking ahead to the end of 2025 and into 2026, the greatest risk to the housing market is not a single factor but a combination of uncertainties. These include economic concerns, political instability, and personal financial anxieties.
Persistently high inflation, a volatile political landscape, and a cooling job market—with falling job openings and layoffs in the tech sector—are making consumers cautious. When people are uncertain about the economy or their own job security, they tend to delay major financial decisions like buying a home.
"All these things in concert tend to make us do one thing, and that’s nothing. We tend to freeze in place," Gardner stated. This hesitation is the primary force suppressing transaction volumes throughout 2025.
However, there is a potential for greater clarity in the coming year. As the long-term outlook for interest rates solidifies, more buyers and sellers may feel confident enough to re-enter the market. Gardner predicts that while total home sales in 2025 will only be modestly up from last year, 2026 should see a "fairly decent jump" in activity, moving closer to the 5 million transaction mark.
Analysts are also watching for potential government intervention. Treasury officials have hinted at programs to support homeownership, which could include first-time buyer incentives, down payment assistance, or measures to reduce tariffs on construction materials. Such policies could provide a much-needed boost to the market.
