With ongoing concerns about interest rates and housing affordability, many fear a looming recession. But Lawrence Yun, Chief Economist at the National Association of REALTORS®, suggests that if a downturn happens, it’s likely to be mild — not severe. Here’s his outlook for the housing market and broader economy as we move through 2025.
The Current Economic Picture (2025)
- Existing home sales are expected to increase by about 6% in 2025 and another 11% in 2026.
- New-home sales are projected to rise by 10% in 2025 and 5% in 2026.
- Mortgage rates are forecast to average around 6.4% in the second half of 2025, with a slight drop to about 6.1% in 2026.
- Home prices are anticipated to grow by roughly 3% in 2025 and 4% in 2026.
While these numbers reflect optimism, they are more cautious than earlier forecasts due to continued affordability challenges and fluctuating mortgage rates.
What’s Supporting the Market Right Now
Yun points to several key factors that could help keep the housing market and broader economy from sliding into a deeper recession:
1. A Resilient Labor Market
Job growth has slowed but remains solid. Unemployment remains low, and wage growth is moderate — giving many consumers the ability to remain active in the economy.
2. Gradual Improvement in Housing Supply
More listings and new construction are starting to appear, which can relieve pressure on prices and help balance supply with demand.
3. Mortgage Rate Stabilization
If mortgage rates level off or decline slightly in late 2025, that could ease affordability pressures and bring more buyers back into the market.
4. Homeowner Equity as a Safety Net
Unlike the 2008 crisis, today’s homeowners typically have strong equity positions. That reduces the risk of widespread foreclosures or distressed selling, helping maintain market stability.
Risks to Watch in 2025
Even if the outlook is relatively stable, there are still risks that could weigh on the market:
- Further spikes in mortgage rates could push more buyers out of the market.
- Affordability remains tight, especially for first-time buyers.
- Inflation or policy shifts could keep interest rates higher for longer than expected.
- Some local markets may see sharper corrections based on overbuilding or reduced demand.
- Consumer confidence could waver if economic uncertainty grows in other sectors.
Why a Mild Downturn Is the Most Likely Path
Yun’s overall assessment is that the U.S. housing market and economy are slowing — but not in freefall. His reasons include:
- We’re not coming off a speculative housing bubble like in past downturns.
- Job growth and consumer spending are still active.
- Inventory is improving slowly, but not enough to crash prices.
- Policy responses and stronger consumer financial health may cushion any deeper slide.
This suggests a period of adjustment, not a crash.
Key Indicators to Monitor This Year
To gauge whether Yun’s predictions play out, keep an eye on:
- Mortgage rates and how they trend into 2026
- Home sales volume and pending contracts
- Housing starts, permits, and builder confidence
- Regional inventory trends and buyer activity
- Employment numbers and consumer spending behavior
Bottom Line
Yun’s 2025 forecast points toward a “soft landing” — slower market activity, stable prices, and gradual recovery. While affordability and interest rates are major hurdles, solid job numbers, better supply, and equity-rich homeowners all serve as stabilizers.
For buyers, sellers, and investors, this means opportunity still exists — especially for well-priced, move-in-ready homes in desirable areas. Staying informed and prepared will be the key to making smart real estate decisions in this transitional market.
Source: REALTOR® Magazine
“Yun: Possible Economic Downturn Likely to Be Mild”
National Association of REALTORS®
