Some real estate experts believe the market could normalize by 2025 after years of change. Veterans United Home Loans – the country’s largest producer US Department of Veterans Affairs (VA) loans — assumes that mortgage rates and home price growth may slow, but affordability problems may persist.
The conclusions come from the lender’s 2025 Housing Market Outlook report released this week. The Missouri-based lender said mortgage rates and home price appreciation have cooled slightly throughout the year. Loan rates will be 6.5% per annum but will gradually decrease to 6.3% later than expected The Federal Reserve reduction of interest rate. The Fed is likely to cut rates by another 75 basis points, putting them at 3.50% to 3.75%, according to the report.
But these cuts may not have an impact on mortgage rates as quickly as you might expect. “The impact of Fed rate cuts on mortgage rates will be gradual. “Broader economic conditions, including increased Treasury issuance requirements, may increase pressure on rates,” the report explained.
Economic factors outside of the housing industry may also create optimism. Joe Ellison, vice president of capital markets for Veterans United, described the housing market of 2025 as a mixed bag of opportunities and obstacles.
“The coming year will be characterized by equality of opportunity and constraints, and affordability is a major challenge,” Ellison said. “Prospective buyers and sellers will need to navigate a complex environment where stability and sustainability are coupled with economic pressures.
“While consumers may find falling mortgage rates encouraging, continued inflation and slack wages could significantly reduce their purchasing power. Affordability challenges will encourage retailers to easily accept deals to attract buyers.”
Affordability has been a constant challenge in 2024 – and that will not change in 2025. Veterans United expects home prices to grow 3.2% to a national average of $424,977. That’s almost consistent HousingWire‘s 2025 Housing Market Forecast, which predicts home price growth of 3.5%. Veterans United expects 2025 existing home sales of 4.2 million to 4.5 million. HousingWire also estimates 4.2 million home sales (up 5%).
What are the causes of affordability problems? Veterans United says this is due to fewer housing starts due to higher construction materials and labor costs. Expensive construction work and materials may stem from policy measures taken by the new Trump administration. Stronger taxes and eviction policies could have a direct impact on construction workers and housing supply, according to recent comments from Redfin.
That could have a negative impact on would-be buyers and housing workers — especially since the increased supply “not only helps reduce inflation but also eases the country’s housing affordability crisis,” according to the National Association of Home Builders (NAHB). But time will tell if the construction cost concerns are true.
Veterans United also believes that “creative financial solutions and loan products” will be the answer for middle-income earners (those earning 50% to 80% of local income) and first-time buyers. These products include government-backed loans, concessions, incentives, buyouts and closing cost assistance. “Those who cannot take advantage of government programs, such as VA, FHA and USDA loans, will be able to access lower rates,” the lender explained.
The report also expects refinancing activity to remain steady at accounting for 15% to 20% of total loans. Homeowners may target home equity products and cash-out refis to obtain the necessary funds.
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