U.S. housing market to improve in 2025, but challenges persist

Investing.com -- The U.S. housing market is expected to see mild improvements in 2025, but elevated mortgage rates and affordability challenges will continue to weigh on activity, according to a Bank of America report.

Mortgage rates, which had fallen from last year’s peak of 8% to around 6% earlier this year, have recently rebounded near 7%. BofA analysts expect rates to remain in the 6-6.5% range in 2025, limiting opportunities for potential buyers and sustaining the “lock-in effect,” as homeowners with low rates are reluctant to sell.

Affordability remains a key concern. Despite some improvement since 2022, affordability is still near its lowest level since 1985, with median home prices at about four times the median income. As of October, the median U.S. single-family home price was $412,000, while the median income stood at $102,000.

The report notes that supply has improved, with construction bottlenecks easing and more projects reaching completion. However, existing home inventories remain historically low, and builders are constrained by high interest rates and costs.

On the bright side, resilient housing demand and gradual wage growth could support the market. BofA forecasts existing home sales to rise to around 4.2 million in 2025, assuming mortgage rates stabilize. The ratio of mortgage payments to rent has also declined, signaling improved conditions in some regions, though renting remains cheaper in 82 of 97 major U.S. cities.

Long-term, affordability is expected to slowly revert to levels seen in the early 2000s as interest rates stabilize and wages outpace inflation. Still, BofA cautions that the road to recovery will be gradual, with high mortgage rates posing a persistent headwind for buyers and sellers alike.

Source: Investing.com