Home Sales May Fall to New 30-Year Low in 2025 as Mortgage Rates Remain Elevated

Realtor.com's revised 2025 housing forecast projects existing home sales will fall 1.5% to a 30-year low of 4 million transactions, primarily due to elevated 30-year mortgage rates averaging 6.7%. Despite increased inventory, affordability constraints continue to suppress buyer demand, while home prices are still expected to see a modest 2.5% growth. The outlook also sharply revises down new construction, with single-family housing starts now expected to decline 3.7%, contributing to a projected decrease in the homeownership rate.

Analysis

The U.S. housing market is projected to experience a sustained and deepening slowdown through 2025, primarily driven by persistent affordability challenges. According to Realtor.com's revised forecast, elevated mortgage rates, now expected to average 6.7% for the year, are the principal constraint on demand. This has led to a significant downward revision in sales expectations, with existing home sales now forecast to decline by 1.5% to just 4.0 million transactions, a level not seen since 1995. A key dynamic is the market's muted response to rising inventory; despite active listings surpassing 1 million for the first time since 2019, sales have not materialized, indicating that high borrowing costs and record prices are sidelining buyers. Despite weak transaction volumes, a broad price correction is not anticipated. Home prices are projected to appreciate by a modest 2.5%, supported by seller behavior, as evidenced by a 47% year-over-year surge in delistings, suggesting owners would rather wait than accept lower offers. The outlook for new construction has also deteriorated sharply, with single-family housing starts now projected to fall 3.7%, a stark reversal from the 13.8% gain previously forecast, signaling headwinds for homebuilders and exacerbating the long-term supply shortage.

Key Decisions for Investors

• Investors should adopt a cautious stance on companies reliant on housing transaction volumes, such as real estate brokerages and mortgage lenders, given the forecast for sales to hit a 30-year low.
• The sharp downward revision for single-family housing starts from a 13.8% gain to a 3.7% decline signals significant headwinds for homebuilder equities.
• Differentiate between investments exposed to housing prices versus those exposed to sales volume, as the forecast indicates continued price resilience despite a significant slump in transactions.
• Consider the regional disparities mentioned, as the relative stability in the Northeast and Midwest could present a more defensive positioning compared to the greater inventory and affordability pressures in the South and West.
• The projection for a soft rental market, with rents expected to fall 0.1%, suggests limited near-term upside for residential REITs, particularly those focused on new tenant acquisition.