2025 Housing Market Outlook: Rates Easing and Prices Rising

According to the recently released 2025 housing market forecast from Veterans United Home Loans, mortgage rates are expected to average at 6.5% for the year, but eventually drop to about 6.3%. These changes will be driven in part by the Federal Reserve’s rate cuts which will only really start to make a difference as the year progresses.

Veterans United, the largest lender of Veterans Administration loans, anticipates that despite some challenges, the 2025 housing market will see some positive changes. Economic growth, with the gross domestic product increasing between 2% and 3%, will be notable. However, inflation is expected to increase to around 3% or a bit higher, creating some challenges along the way.

The lending environment for the housing market is expected to see some shifts. While economic factors, particularly 10-year Treasuries, are likely to push mortgage rates up, the report predicts a decrease in 30-year fixed-rate mortgages, leading to an increase in refinancing. Veterans United further anticipates the Federal Reserve reducing rates by 75 basis points, landing federal fund rates between 3.50% to 3.75% by the end of the year.

Joe Ellison, vice president of capital markets at Veterans United, highlights that while the rate cuts may ease borrowing costs, broader economic factors will still play a significant role in shaping the market’s pace. Trends like rising Treasury issuance requirements and shifts in fiscal policies will create a complex environment for the housing market.

Looking ahead, the forecast outlines an increase in home prices by 3.2% next year, with the median home price projected to reach $424,977. Existing home sales are expected to close the year within the range of 4.2 million to 4.5 million units. However, the report forecasts inflation to rise between 3% and 3.5%, indicating challenges for policymakers and consumers alike.

Refinancing is predicted to represent a significant portion of the mortgage market, estimated to be around 15% to 20%. As confidence in the economy strengthens, lending practices are likely to improve. Homeowners, seeking to leverage their home equity, are expected to dominate this market segment, primarily focusing on cash-out refinances and home equity products.