The outlook for the US housing market in 2025

Key takeaways

• J.P. Morgan Research expects house prices to rise by 3% overall in 2025.
• The higher-for-longer interest rate backdrop is here to stay, with mortgage rates expected to ease only slightly to 6.7% by the year end.
• President Trump’s policies could have complex implications for the housing market, particularly on the issue of affordability.

Home price outlook for 2025

The U.S. housing market is expected to stay mostly stagnant through 2025, with modest growth anticipated at a rate of 3% or less. Demand, typically measured by existing home sales (EHS), remains unusually low. While housing inventory is slowly increasing, it continues to fall short of historical averages.

"Existing homes for sale have returned to more typical levels in several major Metropolitan Statistical Areas (MSAs), and new homes are becoming more abundant," said Michael Rehaut, head of U.S. Homebuilding and Building Products Research at J.P. Morgan. "Currently, there are 481K new homes for sale, the highest since 2007, and 385K speculative homes, the highest since 2008. These numbers are approximately 50% and 40% above long-term averages, respectively. However, supply will likely provide less support for the housing market in 2025." Nationally, the number of single-family existing homes for sale has risen around 20% year-over-year, but it still remains close to record lows, about 20-30% below previous troughs.

A housing shortage is often linked to supply constraints. While underbuilding over the last decade is clear, a long-term housing shortage remains less obvious. Over the past 30 years, the net change between new household formations and housing completions has been nearly zero. Other factors may be contributing to the shortage:

• There are an estimated 11.2 million undocumented immigrants in the U.S., with this number possibly being higher. This demographic could be driving housing demand more than official figures indicate, leading to a tighter housing supply.
• Due to rising rates and declining rental economics, builders of multi-family units have slowed down their construction plans. While building activity is returning to normal, the higher rates are expected to dampen new construction further.

Given the current low supply and demand levels, how can the housing market continue to grow in 2025? "The wealth effect from borrowers with substantial home equity and/or gains in the equity markets should support modest home price growth, though at a slower rate," said Sim. While income growth hasn’t kept up with home price increases, existing homeowners are in a strong position. Additionally, for those who own equities—particularly renters—there may be more available funds for down payments, which can help reduce mortgage rates. Despite ongoing affordability challenges, this wealth effect is a key factor in the continued growth of home prices.

President Trump is yet to unveil specific housing policy proposals, but potential direction can be inferred. Limited housing supply has been a key factor driving significant home price growth over the past few years. Trump has recognized the shortage of affordable housing as a significant challenge for many Americans — to address it, he’s proposed two primary solutions:

1. Streamlining zoning approval processes to shorten construction timelines, though this would need to be addressed at a local level except on federal land.
2. Making federal land available for new housing construction projects.

Other potential solutions, such as multifamily construction in areas zoned for single family homes, look unlikely under a Trump administration. Trump has generally opposed multifamily developments in predominantly single-family neighborhoods. In addition, a major campaign promise was to prevent low-income housing developments in suburban areas.

On the demand side, Trump has been less vocal about solutions. However, he has consistently emphasized the effects of immigration on housing market demand. “By reducing immigration and lessening demand, Trump argues that housing costs can be reduced,” Sim said. “It’s not that simple, though — approximately 30% of construction workers are immigrants, so there could be complex implications. Cutting immigration would mean cutting labor supply in the construction industry, which could end up exacerbating the lack of affordable housing.”

Beyond housing, several of Trump’s proposals could, if implemented, lead to rising inflation, which is likely to result in higher mortgage rates that would further dampen housing demand. In particular, government-sponsored enterprise (GSE) privatization — which includes the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) — is expected to come into focus. If executed hastily, this could widen mortgage-backed security (MBS) spreads and lead to even higher rates for borrowers.

“It’s evident that numerous aspects of Trump's policy will impact the housing market,” Sim said. “For now, though, all we can do is wait.”