Plummet in Existing-Home Sales Reaches Nine-Month Depth According to Kiplinger's Forecast
The U.S. housing market is experiencing a cooling trend in 2025, with home prices appreciating at a slower pace, mortgage rates remaining elevated but slightly declining, housing starts falling, and new home sales slowing down. These factors are contributing to reduced affordability and a market with some increased inventory but still a persistent shortage in supply.
Home Prices
Home prices posted a modest 2.7% annual gain in April 2025, the slowest since mid-2023. Despite slower growth, prices remain significantly higher than five years ago, up nearly 50%. Associated costs like property taxes and insurance have also risen substantially.
Mortgage Rates
Mortgage rates have recently dropped slightly, with the average 30-year fixed-rate mortgage around 6.59% in mid-August 2025, down from previous highs but still generally in the upper 6% range. The Federal Reserve is expected to hold rates steady for now but may start modest rate cuts later in the year. However, economic uncertainty, tariffs, inflation, and geopolitical issues limit the potential for large declines, keeping rates volatile and relatively high compared to historic lows.
Housing Starts
New single-family housing starts are projected to decline by about 3.7% in 2025 to around 980,000 units, a significant downward revision from earlier forecasts. Builder sentiment is low due to economic volatility and high mortgage rates, deterring construction. The slowdown in new construction exacerbates the existing shortage of homes relative to demand.
New-Home Sales
New home sales are slowing, with sales reported at a seasonally adjusted annual rate of about 627,000 in June 2025, down 6.6% from June 2024. Builders are responding to weaker demand by offering larger incentives and discounts to buyers, including mortgage buydowns, in an effort to maintain sales volume. The slowdown and increased incentives suggest waning buyer confidence and affordability pressures, particularly in key regions like the Sun Belt.
Impact on the Housing Market
The combination of high (but slightly moderating) mortgage rates and slower home price growth is cooling the market, limiting new buyers' affordability. The decline in housing starts and new home sales contributes to ongoing supply shortages, pushing many potential buyers, especially younger first-time buyers, to remain renters longer; the first-time homebuyer age is at a record high of 38. Homeownership rates are projected to decline slightly to about 65.2% in 2025, continuing a downward trend from previous years. For renters, rent growth is expected to be soft or slightly declining, possibly as a result of some renters staying put longer amid uncertain buying conditions.
In summary, the 2025 U.S. housing market faces constrained supply, elevated borrowing costs, and affordability challenges, resulting in slower price growth, reduced new construction, and weaker new home sales. Builder of single-family homes are facing mounting headwinds due to stubbornly high mortgage rates, rising inventory of existing homes, and cooling price gains. At the current sales pace, the inventory of new homes would last 9.8 months. The total inventory of existing homes on the market rose 15.9% in June from a year ago. New-home sales rose 0.6% in June to a seasonally adjusted annual rate of 627,000 units. Housing supply has recovered during the past couple of years, but is still below prepandemic levels. Single-family starts fell 4.6% in June. The inventory of new homes has risen 8.5% over the past 12 months. Total housing starts rose 4.6% in June, largely driven by a 30% jump in multifamily starts. New York reported the strongest home price gains over the previous year, followed by Chicago and Detroit. Single-family permits notched their fourth consecutive decline in June. A downtrend in single-family permits points to the trajectory of new-home construction over the coming months. Elevated mortgage rates are still weighing on existing-home sales, which fell 2.7% in June to 3.93 million annualized units. Mortgage rates hovered around 7% for most of June. The S&P CoreLogic Case-Shiller U.S. National Home Price Index rose 2.3% in May from a year earlier, down from a 2.7% annual gain in the previous month. Homes prices in Tampa fell 2.4%, the weakest return in the 20 cities covered by the index. The decline in single-family permits indicates that builders continue to deal with high financing costs, elevated economic uncertainty, and unfavorable supply conditions due to the volatile U.S. trade policy under the Trump administration. On a month-over-month, seasonally adjusted basis, home prices fell 0.3%. Inventory is now at the highest level since May 2020, translating to 4.7 months of supply at the current sales pace. As mortgage rates remain elevated, builders have stepped up their use of mortgage rate buydowns and other incentives to soften the impact of higher rates. The median price of a new home now stands at $401,800, down 4.9% from a year ago.
Investing in real estate might be less attractive in the current U.S. housing market due to elevated mortgage rates, as the average 30-year fixed-rate mortgage remained in the upper 6% range in mid-August 2025. The cooling trend in the housing market is also affecting the finance sector, as the slowdown in new home sales and housing starts generates reduced demand for mortgages. Despite the increased inventory due to reduced affordability, the persistent shortage in the housing-market supply is likely to continue, as home prices remain significantly higher than five years ago, and associated costs like property taxes and insurance have escalated.
