The market optimism has dampened, with Congress passing a sweeping tax-cut and spending bill estimated to add roughly $3.3 trillion by 2034 to an already-enormous $36.2 trillion debt pile, according to nonpartisan think tank the Committee for a Responsible Federal Budget. Long-term bond yields have spiked higher, limiting scope for a decline in mortgage rates.
"Looking ahead through the rest of this year and into 2026, we don’t expect mortgage rates to come down much — at least not through the third quarter of 2025 — so affordability will remain pressured," said James Egan, housing strategist at Morgan Stanley.
U.S. home prices based on the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas (USSHPQ=ECI), opens new tab are forecast to rise 3.5% each year through 2027, according to a May 19-June 3 Reuters survey of 27 property analysts.
If realized, that would be the slowest pace of home price rises since 2011. Average home prices are more than 50% above where they were in 2019, before the COVID-19 pandemic.
"The housing market remains in a cooler phase as sellers continue to adjust to looser conditions after the red-hot pandemic years," said Thomas Ryan, an economist at Capital Economics.
Even with two more Fed interest rate cuts expected later this year according to rate futures, 30-year mortgage rates (USMG=ECI), opens new tab are only set to ease to an average 6.73% this year from 6.98% currently.
They are forecast to fall to average 6.33% next year and 6.29% in 2027, survey medians showed, still over double some of the lowest rates of around 3% buyers took out during pandemic years that few are willing to relinquish.
"If mortgage rates were to drop meaningfully — say by 50 to 100 basis points — we could see a surge in buying activity. But rates really need to come down first,” said Lawrence Yun, chief economist at the National Association of Realtors.
Construction spending fell unexpectedly in April and has been constrained by a decline in outlays on single-family housing projects and a rising inventory of unsold homes. It faces additional challenges from Trump's tariffs, most respondents said.
While there's still a lot of uncertainty about what level of tariffs are ultimately going to be implemented, they're going to make it more expensive to build.
