In the first half of 2025, the trends in the U.S. real estate market in the second half of the year will be influenced by various macroeconomic and financial indicators. Let’s discuss the five key factors affecting the housing market in the second half of the year: the Federal Reserve’s interest rate policy projections, the job market, GDP growth forecasts, consumer confidence indices, and the availability of mortgage loans.
According to the Economic Projections Summary (SEP) released by the Federal Reserve in March 2025, the median expectation of the Federal Open Market Committee (FOMC) policymakers is that the federal funds rate will decline to around 3.9% by the end of 2025. The current target range for interest rates is between 4.25% and 4.50%.
This suggests that the Fed may start a mild interest rate cut in the second half of 2025 in response to easing inflation and slowing economic conditions. President Trump has been urging the Fed to start cutting rates as soon as possible. However, the Fed seems inclined to take a more conservative approach, waiting for inflation to continue to decline and a clear economic recession before starting to lower rates.
However, the extent of the decline in mortgage rates may be relatively limited due to ongoing uncertainties in the financial markets. The Mortgage Bankers Association (MBA) raised its forecast for 2025 mortgage rates back in November 2024, expecting the 30-year fixed-rate mortgage for the whole year of 2025 to remain around 6.4% to 6.6%, higher than the previous prediction of 5.9% to 6.2%.
However, due to the continuous adjustments and negotiations in President Trump’s economic policies, the instability in the international financial and mortgage markets persists. Therefore, as mentioned in my spring housing market report in March of this year, one should not expect a significant decrease in rates for this year. The decline in rates will not be rapid.
Moreover, the direction of the inflation rate is another important factor affecting mortgage rates. The Consumer Price Index (CPI) report for May, released by the U.S. Bureau of Labor Statistics on June 11th, showed a 0.1% month-over-month increase and a 2.4% year-over-year increase. The report indicates a significant easing of inflation pressure compared to the previous year, especially in housing-related prices such as rent, which showed a slower growth trend. In May, the annual growth rate for the housing category was 3.9%, reflecting a stable rental market due to increased supply of newly constructed apartments.
In theory, a decrease in the inflation rate should lead to a decrease in mortgage rates, but that has not happened yet. Thirty-year fixed rates are still very close to 7%. Blame can be attributed to the Fed’s reluctance to cut rates and ongoing market concerns about the economy, which have recently led to a decline in Mortgage-Backed Securities (MBS) demand, directly raising mortgage rates. Therefore, it is often said that there are many factors affecting the rise and fall of mortgage rates, and it is not possible to make blanket statements.
The health of the U.S. job market directly affects people’s confidence and ability to purchase homes. Since the beginning of 2025, job growth has remained positive but has slowed down.
The latest data from the Bureau of Labor Statistics shows that non-farm payrolls in the spring of 2025 increased by only about 135,000 per month, lower than the average level in 2024, with significant slowdowns in job growth numbers for March and April after revisions.
The unemployment rate in May remained at around 4.2%, slightly higher than the 3.7% at the end of 2024. In fact, the rate has stabilized at 4.2% for the third consecutive month due to 625,000 people exiting the labor market, indicating a lack of confidence in the job market. These signs suggest that the labor market supply and demand are beginning to loosen, with companies being cautious about hiring under high-interest rates and economic uncertainty; however, there has not been any significant layoffs yet.
Looking ahead to the near future, professional institutions predict that the unemployment rate will see a slight increase in the second half of 2025 but will not deteriorate drastically. The Federal Reserve Bank of Philadelphia’s forecast survey shows that the unemployment rate may increase slightly from around 4.1% currently to about 4.3% in the fourth quarter of 2025. The median expectation of the FOMC is similar, estimating the unemployment rate to be around 4.4% in 2025, indicating that the job market may experience a soft landing, showing a slight weakening while remaining relatively stable.
As job trends slow down, wage growth also shows signs of cooling off: as of May 2025, the average hourly wage growth rate was about 3.9%, lower than the same period last year, indicating that wage increases are gradually returning to pre-pandemic normal levels.
The Congressional Budget Office’s outlook also indicates that as labor demand weakens in the coming years, wage growth will slow down. For potential homebuyers, job and income prospects are crucial — if the unemployment rate remains low and wages continue to grow, families will have the confidence to afford mortgages and related expenses, supporting housing demand.
The economic growth momentum in the second half of 2025 will be another key factor affecting the temperature of the housing market. The Fed’s projections show that the U.S. real GDP growth rate will slow down from an estimated 2.8% in 2024 to about 1.7% for the full year of 2025. The FOMC’s median estimate is also 1.7%, representing a significant slowdown in the economy, which is related to the continued tightening of monetary policy and the previous effects of rising interest rates.
Other institutions have also recently lowered their growth expectations. Due to the economic headwinds brought about by the new tariff policies at the beginning of 2025, Goldman Sachs has significantly downgraded its GDP growth forecast for 2025 from the original 2.4% to 1.7%.
One of the Big Four accounting firms, Ernst & Young (EY), even anticipates that the economy will approach a “stagnation pace” by the end of 2025 — real GDP annual growth rate in the fourth quarter may only be around 0.6%. The latest survey from the Fed Bank of Philadelphia shows that economists expect an average growth of about 1.4% in 2025, one percentage point lower than the previous forecast.
In general, there is a market consensus that the economy in the second half of 2025 will significantly slow down, possibly nearing zero growth, mainly due to factors such as high-interest rates, fiscal tightening, and uncertainty in international trade that suppress demand.
A slowdown in GDP growth typically indicates a cooling of housing market activities. When the economy lacks growth momentum, corporate investments and consumer spending weaken, and the housing market often feels the impact: homebuyers become pessimistic about future income, leading to a decline in housing transactions. New home construction and the construction sector also slow down.
Research from the MBA indicates a downgrade in mortgage lending and home sales forecasts for 2025, given the higher tariffs and economic headwinds. For example, MBA has reduced its forecast for total mortgage lending volume for 2025 from the previous $2.3 trillion to around $2.1 trillion and expects the total sales of existing homes in 2025 to be around 4.25 million units, lower than the earlier estimate of 4.3 million units.
The softening economic growth is also reflected in housing demand: real estate industry observers note that the recovery momentum in the housing market in 2025 is delayed from initial expectations; overall buying sentiment leans towards caution. However, if the economy experiences a soft landing, with only mild slowdown instead of a recession, the housing market may maintain a stable tone.
Consumer confidence is an important leading indicator of buying intentions. In the first half of 2025, the U.S. Consumer Confidence Index (CCI) showed significant fluctuations and a weakening trend overall.
The Consumer Confidence Index of The Conference Board dropped significantly to 98.3 in February 2025 (index < 100 indicates consumer pessimism), a nearly 7-point monthly decline, marking the largest monthly drop since August 2021. The sentiment further worsened over the subsequent months: as of April, the index had fallen by over 19 points in three months.
However, it's worth noting that during the last financial crisis, consumer confidence index reached its lowest points around 25-30 from 2007 to 2009. Currently, American consumers are only mildly concerned about the economic outlook compared to past periods.
Mark Zandi, Chief Economist at Moody's Analytics, specifically warned that historically, if the confidence index drops by over 20 points within a quarter, there is often an economic recession within the next six months. Although the drop as of April was slightly below this threshold, it was very close, indicating a significant increase in consumer concerns about the economic outlook.
Buying a house is a major long-term expense, and a decline in the confidence index indicates potential buyers might become more cautious, choosing to postpone buying plans, thereby weakening housing market activity.
On the other hand, the Mortgage Credit Availability Index (MCAI) will determine how many buyers can obtain sufficient mortgage funds. Following the credit tightening experienced in 2022-2023, there are slight signs of easing in the lending environment.
The Mortgage Credit Availability Index of the MBA has been steadily rising in 2025: in May, the index increased by 2.1% month-over-month to reach 105.1, the highest level since August 2022.
Joel Kan, Deputy Chief Economist at the MBA, pointed out that the expansion of credit supply in May mainly came from an increase in conventional and government loan options — many lenders provided a more diverse range of loan products to support the spring home buying season. Conventional loan credit indices also reached new highs since June 2022, and government loan indices rose to the highest levels since November 2023; there was a noticeable improvement in the supply of jumbo loans, with the index increasing by 2.1% compared to before, reaching the highest level since February 2020.
The increase in the Mortgage Credit Availability Index means that more homebuyers have the opportunity to obtain mortgage approvals, especially those who are at or near the mortgage approval threshold, benefiting from relaxed credit conditions. This, to some extent, can stimulate housing demand, providing positive support to the housing market amid an economic slowdown.
However, it should be noted that the current MCAI level is still far below the high points of 2019 when the index was above 180, indicating that financial institutions remain cautious about risk management, and while the credit environment has improved, it is not excessively loose. If the economy deteriorates in the future, banks may tighten lending standards again, leading to a further decline in credit availability, which would further impact housing market sentiment, creating a vicious cycle. Therefore, monitoring the direction of financial institutions' lending policies is equally important in assessing the housing market outlook for the second half of the year.
In conclusion, summarizing the housing market in the second half of 2025 in brief, one could say: "High-interest rates suppress demand, the economy is slowing down while seeking growth, and investors are awaiting opportunities."
For investors, the focus may shift to defensive assets, such as investing in multifamily properties: providing stable rental income, they tend to perform relatively steadily during economic slowdowns; medical facilities and logistics real estate: driven by aging populations and e-commerce, they offer stable rental growth.
Real Estate Investment Trusts (REITs) are also likely to regain favor among investors, particularly those concentrated in: apartment REITs (such as AvalonBay, Equity Residential); warehouse REITs (such as Prologis); medical and care REITs (such as Welltower, Ventas).
In the resale housing market, due to cautiousness and wait-and-see attitudes among buyers and the housing inventory since spring, the market is transitioning from a few years of high demand but low supply to gradually improving supply. According to Realtor.com, by May, new listings increased by 20.8% compared to the previous year, maintaining a positive year-over-year trend for 18 consecutive months. Redfin's data shows that there are about 490,000 more sellers than buyers currently, marking the largest gap since 2013.
Data from the St. Louis Fed Economic Database shows that active listings in the U.S. reached 1,036,101 in May, about a 25% increase from January 2025, indicating a significant rise. These signs present rare opportunities for buyers, providing more room for negotiation. However, the current high-interest rates require careful consideration of one's credit situation and future homeownership costs. ◇