Veterans United Predicts 2025 Will Bring More Buyers Into the Market as Rates Stabilize and Home Price Growth Moderates

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Affordability Will Continue to Remain a Challenge Prompting Buyers to Rely Heavily on Seller Concessions and Creative Financing Options

After five years of dramatic ups and downs, the U.S. housing market is poised for stabilization, according to Veterans United’s 2025 Housing Market Outlook. Although affordability challenges and economic uncertainties remain, improvements in mortgage rates and more moderated home price growth signal a gradual recovery.

“The coming year will be characterized by a balance of opportunities and constraints, with affordability being the defining challenge,” said Joe Ellison, Veterans United’s Vice President of Capital Markets. “Prospective buyers and sellers will need to navigate a complex landscape where stabilization and recovery coexist alongside economic pressures. Although buyers may find declining mortgage rates encouraging, persistent inflation and lagging wages may significantly limit their purchasing power. Affordability challenges will prompt sellers to be more receptive to concessions to attract buyers.”

Veteran United’s 2025 forecast is based on the following key trends:

Mortgage rates will decline by year-end, but remain above 6%

Mortgage rates in 2025 are expected to average 6.5%, gradually declining to 6.3% by year-end as Federal Reserve rate cuts take effect.

After several years of rate hikes aimed at curbing inflation, the Fed is expected to reduce rates by 75 basis points, ending the year with a target range of 3.50%-3.75%. However, the impact of the Fed’s rate cuts on mortgage rates will be gradual. The broader economic landscape, including rising Treasury issuance requirements, may place upward pressure on rates. Despite these headwinds, rates are projected to decrease by year-end, offering borrowers more favorable conditions compared to recent years.

The slow but steady decline in mortgage rates will likely encourage confidence among buyers waiting on the sidelines, particularly those entering the market for the first time. Those who can take advantage of government programs, such as VA, FHA and USDA loans, will have access to lower rates.
Housing affordability will drive seller concessions, creative financing options

Affordability will remain a critical issue throughout 2025. Despite the anticipated decline in mortgage rates, home prices are projected to grow 3.2% in 2025, driven by persistent demand and constrained supply.

Builders are expected to reduce housing starts in response to higher material and labor costs, further constraining the supply of affordable homes. These factors will perpetuate the inventory shortage, particularly in high-demand markets such as the South.

With affordability remaining a barrier for many households, creative financing solutions and loan products, targeting moderate-income buyers or first-time homebuyers such as government-backed loans, will continue to gain traction in the market, In addition, seller concessions and incentives, including rate buydowns and closing cost assistance, are likely to play a more prominent role in helping buyers get over the finish line to close transactions.

Based on these market dynamics, the expectation is for the median home price to grow 3.2% next year to $424,977 and existing home sales to end the year between 4.2 million to 4.5 million.
Persistent inflation will have a mixed effect on the housing market

Inflation (core CPI) is expected to hover between the 3-3.5% range in 2025, driving more households toward the rental market, where more inventory has offered relief to renters in terms of choice and prices.

Although the projected inflation growth is a decline from previous highs, it remains higher than the Federal Reserve’s objective of 2%, creating a challenging environment for both policymakers and consumers. These inflationary pressures will have mixed effects on the housing market. Persistent inflation will complicate affordability, limiting significant price reductions but also curbing housing demand, which could put further upward pressure on home prices.

As inflation moderates further, broader economic stability could improve consumer confidence and foster more active participation in the housing market.
Refinance activity will hold steady

In 2025, the refinancing market is expected to experience nearly the same levels as in 2024, accounting for 15-20% of total mortgage activity. Homeowners seeking to tap into equity will dominate refinance activity, with cash-out refinances and home equity products leading the way. Cash-out refinances are likely to gain popularity as homeowners leverage their record-high equity for renovations, debt consolidation or other financial needs.

For borrowers locked into rates above 7%, the gradual decline in mortgage rates presents an opportunity to reduce monthly payments. However, rate-driven refinancing will remain less attractive compared to historical norms, given the relatively high rate environment.

To view the full report, including charts, please visit: https://www.veteransunited.com/education/rate-forecast/