WASHINGTON (Reuters) – The rate on the popular U.S. 30-year fixed-rate mortgage will average around 6.0% next year and help to boost new housing construction and stimulate demand for previously owned homes, the National Association of Realtors predicted on Thursday.
The NAR also projected 4.5 million existing home sales in 2025 and forecast house prices increasing by about 2%. It estimated a $410,700 median existing home price.
“If rates stabilize around 6%, about 6.2 million households can once again be able to afford median-priced homes, compared to the current constraints with rates near 7%,” NAR said.
The housing market experienced mixed fortunes from the Federal Reserve’s aggressive monetary policy tightening between March 2022 and July 2023. Sales of previously owned homes contracted sharply also as higher mortgage rates discouraged many owners from putting their houses on the market.
Many homeowners have mortgage rates below 5%. The so-called rate-lock worsened a supply crunch, boosting home prices and pricing out many potential homeowners.
Builders responded by constructing smaller homes, drawing buyers to new construction, which drove new home sales higher.
The U.S. central bank has cut interest rates twice since it started its easing policy cycle in September, with a third reduction expected next week. Still, the 30-year fixed-rate mortgage has remained close to 7%, tracking the yield on the 10-year U.S. Treasury note, which has risen on the economy’s resilience and worries that some of President-elect Donald Trump’s planned policies would stoke inflation.
The NAR forecast 1.45 million housing starts next year, the bulk of them for single-family units.
“Lower rates can significantly benefit homebuilders by reducing financing costs and boosting market confidence,” the Realtors group said. “However, inventory levels are still expected to fall short of pre-pandemic norms, continuing to present challenges for buyers.”