Midyear housing market gut check: Where are we and where are we headed?

The nation is halfway through 2025 — a year that was slated to offer lower mortgage rates, subdued home prices and more properties for sale. Some of those predictions have come to pass. Still, experts watching the housing market closely say U.S. economic uncertainty has bogged down what should have been months of hyperactive homebuying and selling.

Mortgage rates have flirted with 7% all year, a trend economists blame for why more buyers haven’t closed on a property. Rates will likely move depending on how — or whether — the Federal Reserve tweaks its benchmark rate. Meanwhile, median home sale prices are still rising — just not as much in big cities.

There is a silver lining: As Americans grapple with a nationwide housing shortage, inventory is rising for new and existing properties. That means homebuyers, depending on where they’re looking to move, should have a decent number of options once mortgage rates adjust to their liking, economists say.

Here’s a closer look at how mortgage rates, home prices and listing inventory have fared in the first six months — along with a taste of what experts expect for the rest of the year.

Many economists have predicted a better year for borrowing costs in 2025. So far, though, the mortgage market has defied those expectations.

Between Jan. 1 and June 26, when the most recent data about the mortgage market was released, the 30-year, fixed-rate average fluctuated between 6.62% and 7.04%. This week was the first time it has fallen below 6.76%. The weekly average as of July 3 was 6.67.

The prevailing narrative for much of the spring and now into the summer is that the mortgage market is stuck, bound by economic and geopolitical turmoil compounded by consumer affordability challenges.

In not-so-many words, uncertainty is getting in the way of the expected downward pressure on the mortgage market, making it difficult to tell when that change could manifest.

Even so, the last few weeks have brought mortgage rates slightly lower. That’s mostly “a byproduct of softer economic data and inflation,” according to Matthew Graham, chief operating officer at Mortgage News Daily.

“Rates have more room to fall if the data shows a continued softening,” he wrote in a blog post Friday, “but could spike abruptly if employment surges or tariff-driven inflation actually materializes.”

Another bellwether of uncertainty: Economists are updating their end-of-year forecasts — and they’re going in opposite directions. That said, the consensus estimates hold that the 30-year, fixed-rate mortgage will end 2025 in the 6.5% to 6.7% range.

If mortgage rates do ease this year, it’s likely that more buyers will enter the market. More borrowers are already applying for mortgages than a year ago. In the week ended June 27, for example, there was a 16% increase in applications for mortgages compared to the same time a year earlier, according to the Mortgage Bankers Association.

"The mortgage rate is the magic bullet, and we are just waiting and waiting as to when that could come down," Lawrence Yun, chief economist at the National Association of Realtors, said during a presentation in June.

After two or so years of rapid growth, the first half of 2025 has brought a big slowdown in home prices.

As of May, home price growth had slowed for five consecutive months, with the median home price rising just 1% compared to a year earlier, according to the latest data from Homes.com. In number terms, the median price for all homes — including single-family properties, condos and townhouses — increased by $3,829 to $388,829 in May.

That data also revealed new trends in how that price growth is distributed, both geographically and by housing type.

For one, the recent growth in home prices has been driven exclusively by single-family homes. Condo home prices have stagnated, and townhouse prices fell 1.4% compared to last May, according to Homes.com.

There’s also been a more significant slowdown in major markets such as Boston, New York, Chicago and Philadelphia, while markets in the Midwest are seeing stronger increases. Even so, those metropolitan areas are still among the top 10 markets for price increases.

"Home price growth continues to be stronger in the Northeast and Midwest," said Erika Ludvigsen, national director of residential analytics at Homes.com. "This is due to relative affordability, steady job markets, and room to grow after more modest gains during the pandemic, compared to many Sun Belt region markets."

As for the rest of the year, Ludvigsen said home price growth will mostly depend on the economy and the inventory of for-sale homes.

"Given current economic conditions, we anticipate modest home price growth nationally for the remainder of 2025,” she said, “with regional differences in price movements largely reflecting local market supply dynamics."

New construction is at the mercy of interest rates, notes John Hunt, chief analyst and president of MarketNsight, a firm providing housing market research for homebuilders and developers.

It’s the prevailing determinant of new home activity today, he said, amid ongoing threats of tariffs and general consumer uncertainty, because despite it all, to buyers, it’s “all about price.”

“If we see rates tick down at all, we’ll see people come back into the market and an uptick in demand, but it’s all predicated on rates,” Hunt told Homes.com.

The National Association of Home Builders’ monthly survey gauging homebuilder confidence in new home sales hit a two-year low in June. The trade group says affordability is to blame, pointing the finger at mortgage rates. It’s not that rates are the reason for high home prices; it’s that costs continue to rise for building materials, land and labor, with rates adding extra price pressure.

Construction materials accounted for 64.4% of the average price of a home in 2024, according to the NAHB, up nearly 4 basis points from 2022, marking a record high.

Homebuilders remain cautious, pulling back slightly on construction and looking to different solutions to ease affordability for rate-watching buyers. Hunt said building in less expensive areas and smaller is a common approach to lower costs.

“The common theme for all of our markets is, ‘How do you mitigate price in the face of massive increases and interest rates?’” said Hunt. “Only two ways to mitigate that price at all: You either build a smaller home, which is happening across the board … the other way is moving further out. In every one of our markets, we’re continuing to push out from whatever our [metropolitan statistical area] is.”

The latest data from the U.S. Census Bureau and Department of Housing and Urban Development show that new home starts in May were 7.3% lower than a year prior, and permits pulled were 6.3% lower than in May 2024.

Many builders, like KB Home and Lennar, have reported dropping home prices to help buyers, offering mortgage rate buydowns or other sales incentives, which shrink builders’ margins.

Those efforts have not yet moved the needle dramatically. Fewer buyers moved forward with purchasing new homes in May, according to data from the Census Bureau and HUD. New home sales declined 6.3% year over year in May and 13.7% from April.

With job growth outpacing the consumer price index, there's reason for optimism on existing home sales in 2025 after back-to-back years of the lowest sales totals in three decades, according to Yun, of the NAR.

Speaking last month at the NAR's legislative meetings in Washington, D.C., Yun said existing home sales will increase by 6% in 2025 and 11% in 2026. He expects the Federal Reserve to cut interest rates once inflation moderates and for mortgage rates to average 6.4% in the second half of 2025 and 6.1% in 2026.

Lower mortgage rates would make buyers more willing to commit, leading to faster sales, analysts say. Florida's median time to contract, or days on market, increased in May to 44 days, up from 35 in May 2024, according to the Florida Realtors trade group. In Houston, the median days on market has hit or eclipsed 50 days since September 2024.

The increase in monthly payments due to elevated mortgage rates has been "killing the housing market," according to Yun.

"There's a light at the end of the tunnel based on recent rises in mortgage applications to buy a home," he said at the legislative gathering. "Moreover, a solid majority of renters expressed the desire to own a home."

Industry observers are less upbeat about the near-term market for new home sales, but the outlook isn't all bad.

With tariff impacts exacerbating affordability challenges, unsold new homes piling up and competition intensifying from resale inventories, the NAHB forecasts fewer new home sales in 2025 than in 2024.

The forecast for single-family sales over the next six months is at its lowest level since 2023, and builder sentiment in June dropped to one of its lowest points in more than a decade, noted Odeta Kushi, deputy chief economist at financial services firm First American.

Still, Kushi explained that the average level of new-home sales in 2024 was in line with 2019—the strongest year since 2007. She said resale inventory, while increasing, remains historically low at the national level. That ongoing shortage continues to push buyers toward new construction.

"Unlike the existing-home market, which continues to underperform relative to its pre-pandemic pace, the new-home market is showing relative strength, even if this year ends a bit lower," Kushi said in an email.

She and other analysts believe builder incentives, such as mortgage-rate buy-downs, will drive new home sales, continuing to give builders the upper hand over existing home sellers.

"Builders can be more responsive with pricing and financing solutions, while resale sellers must compete on value — offering move-in ready homes, desirable locations and competitive pricing," she said.

The number of homes available for sale has risen to levels not seen since before the COVID-19 pandemic. But experts say the increase isn’t translating into the affordability they had hoped to see.

“As always with real estate, the key is in the details,” said Nadia Evangelou, senior economist and director of real estate research at the NAR. “Who is actually benefiting from this increase in homes for sale?”

In May, roughly 1.02 million homes were on the market, up 17.2% year over year. This is the first time since 2019 that the number has risen over 1 million, according to research by Homes.com. Single-family homes saw a 15.1% increase, while townhouse inventory rose 21.9% and condo listings jumped by 31.8%.

It was the fifth consecutive month of listing increases.

Many of the new listings are coming from previously “locked in” homebuyers, people who bought at historically low interest rates following the pandemic and were reluctant to sell those homes when rates increased, according to Evangelou.

Those owners have finally gotten used to the new rates, Evangelou said. “They need to move on with their lives,” she said. “They cannot make their life decisions based on their interest rate.”

Additionally, the post-pandemic white-hot housing market led to a construction boom, particularly in areas of high migration, such as the Sunbelt and the West.

Markets in those regions have seen the largest rises in inventory, led by Atlanta, where listings are up 41.6%, according to Homes.com. Aside from Washington, D.C., and Baltimore, the top 10 increases were in Sunbelt and western metros.

“These are places where they can build homes,” Evangelou said. “They weren’t constrained by zoning regulations … That created the additional supply that we have now.”

Housing advocates have been calling for an increase in supply for years to bring prices in line with median incomes. “We would think that more supply in the housing market would be better [for affordability],” Evangelou said.

However, the NAR found in March that households earning $50,000 or less annually could afford only 8.7% of listings on the market, down from 9.4% a year ago.

But there are positive signs. Households earning up to $100,000 can afford 37.1% of the listings, up slightly from 36.9%.

The association concluded the U.S. needs:

· 367,000 more listings priced at or below $170,000

· 416,000 priced at or below $255,000

· 364,000 priced under $340,000

“The homes coming onto the market aren’t always priced where the demand is,” Evangelou said.