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Some housing professionals believe the market could normalize in 2025 after years of changes. Veterans United Home Loans — the nation’s largest producer of U.S. Department of Veterans Affairs (VA) loans — thinks that mortgage rates and home-price growth could subside, but affordability issues may persist.
These conclusions come from the lender’s 2025 Housing Market Outlook report released this week. The Missouri-based lender called for mortgage rates and home-price appreciation to slowly cool throughout the year. Mortgage rates will average 6.5% for the year but will gradually ramp down to 6.3% after anticipated Federal Reserve interest rate cuts. The Fed is likely to cut rates by another 75 basis points, putting them in a range of 3.50% to 3.75%, according to the report.
But these cuts may not impact mortgage rates as fast as you’d expect. “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,” the report explained.
Economic factors outside of the housing industry could also temper optimism. Joe Ellison, vice president of capital markets for Veterans United, described the 2025 housing market as a mixed bag of opportunities and obstacles.
“The coming year will be characterized by a balance of opportunities and constraints, with affordability being the defining challenge,” Ellison said. “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.”
Affordability has been a consistent challenge in 2024 — and that’s unlikely to change in 2025. Veterans United expects home prices to grow 3.2% to a national average of $424,977. That’s roughly in line with HousingWire‘s 2025 Housing Market Forecast, which forecasts 3.5% home-price growth. Veterans United expects 2025 existing-home sales of 4.2 million to 4.5 million. HousingWire also estimates 4.2 million home sales (up 5%).
What are the causes of affordability issues? Veterans United attributes these to fewer housing starts caused by higher building material and labor costs. Expensive construction labor and materials could stem from policy moves enacted by the new Trump administration. Aggressive tariffs and deportation policies could directly impact construction labor and housing supply, according to recent commentary from Redfin.
That may be a downer for prospective buyers and housing professionals — especially since more supply can “not only help tame inflation but also ease the nation’s housing affordability crisis,” according to the National Association of Home Builders (NAHB). But time will tell whether construction cost concerns ring true.
Veterans United also believes that “creative financing solutions and loan products” will be the answer for moderate-income (those earning 50% to 80% of the area median income) and first-time buyers. These products include government-backed loans, concessions, incentives, rate buy-downs and closing cost assistance. “Those who can take advantage of government programs, such as VA, FHA and USDA loans, will have access to lower rates,” the lender explained.
The report also expects refinance activity to remain consistent in accounting for 15% to 20% of total mortgage activity. Homeowners may target home equity products and cash-out refis to tap into needed funds.
