Sluggish Fed Rate Cuts in 2025 Keep U.S. Home Sales on Ice

After two years of historic lows in home sales, the U.S. housing market is expected to rebound in 2025, according to Lawrence Yun, Chief Economist of the National Association of Realtors (NAR). Speaking at the “Residential Economic Issues & Trends Forum” during the 2025 Realtors Legislative Meetings, Yun projected a 6% increase in existing-home sales next year, followed by an 11% jump in 2026.

New-home sales are also expected to rise by 10% in 2025 and 5% in 2026, while the median U.S. home price is forecast to grow by 3% next year and 4% the year after. Yun anticipates mortgage rates will average 6.4% in the second half of 2025 and edge down to 6.1% in 2026.

“The housing market remains very difficult at the moment, as you know,” Yun told a packed ballroom of real estate professionals. “Part of the delay in recovery is because the Federal Reserve has changed its outlook and appears to be on pause for a longer period.”

The Fed, which had previously projected U.S. GDP growth of 2.1% in 2024, revised that estimate downward to 1.7% in March 2025. It also raised its inflation forecast from 2.4% to 2.7%, dimming hopes for imminent rate cuts.

“The fast ascent of mortgage rates has really hurt the real estate market,” Yun said, adding that while current homeowners have benefitted from past low rates, new buyers face significantly higher monthly payments. “Mortgage rates are the magic bullet, and we’re waiting and waiting until those come down.”

Yun noted that April’s inflation reading stood at 2.3%, slightly above the Fed’s 2% target. Still, he suggested that rate cuts could be on the horizon once inflation is fully under control.

“Shelter cost is the heavyweight,” Yun said, referring to the largest component in the consumer price index. “The shelter cost is already coming down from its recent cyclical peak and is trending downward.”

Despite persistent affordability challenges, Yun pointed to signs of recovery in housing demand. He highlighted rising mortgage applications for home purchases and noted that a “solid majority” of renters still aspire to become homeowners.

“Home sales have been very difficult over the past two years,” Yun said. “We’ve had the lowest home sales in 30 years for two consecutive years. But there’s a light at the end of the tunnel.”

Yun also cited labor market resilience and wage growth as positive economic indicators. “Job growth is stronger than it was before the pandemic,” he said, with wage increases of 3.8% now outpacing inflation.

While the housing market’s short-term outlook remains fragile, Yun’s projections suggest a slow but steady recovery could be underway–if inflation cools and interest rates follow suit.