2025–2029 National Housing Outlook: Recovery Ahead Amid Shifting Rates

(May 6, 2025) — As the U.S. housing market enters a new phase, it is doing so with increased economic influence. In the first quarter of 2025, housing’s share of U.S. GDP rose to 16.4%, the highest since late 2022, according to the Bureau of Economic Analysis. This gain reflects renewed momentum in homebuilding and housing services, underscoring the sector’s central role in economic growth, despite ongoing challenges related to affordability and high interest rates.

A Closer Look at Housing’s Economic Role

The residential fixed investment (RFI) component of GDP, which includes home construction and remodeling, expanded to 4.1%, while housing services such as rent and utilities accounted for 12.3%. Together, these components added more than $4.9 trillion to the economy annually and contributed 46 basis points to GDP growth in the first quarter. Within RFI, single-family investment rose 5.9%, even as multifamily investment fell for the seventh consecutive quarter.

Historically, housing represents 17–18% of GDP. The recent upward trend signals a continued recovery from years of underbuilding, especially in the single-family sector, following the Great Recession.

Mortgage Rates Still at the Center

Despite the sector’s economic strength, mortgage rates remain the most influential factor shaping housing activity. Most industry forecasts—including those from First American, Redfin, Bankrate, Realtor.com, and NAR—expect 30-year mortgage rates to remain above 6% through 2025, with only modest declines expected.

  • Bankrate predicts rates will dip to 6.5% by year-end.

  • Realtor.com forecasts an annual average of 6.3%, ending 2025 around 6.2%.

  • Redfin anticipates an average of 6.8%, citing inflation and fiscal policy risk.

  • First American and NAR see rates hovering near 6%.

“Even by the end of next year, it’s hard to see sub-6 percent mortgage rates,” said Mark Fleming, Chief Economist at First American.

Policy Uncertainty and Structural Risk

Macroeconomic and political shifts pose significant risks. According to NAR, existing home sales declined 5.9% between February and March 2025, falling to an annualized, seasonally adjusted rate of 4.02 million—the lowest since 2009. Sales fell in all four U.S. Census regions, with the West seeing the sharpest decline at 9.4%.

Key policy-related threats include:

  • Immigration restrictions are disrupting labor in construction and agriculture

  • Tariff expansions potentially reignite inflation

  • Climate-related costs and AI-driven labor shifts

  • Global trade instability is influencing Treasury yields and mortgage pricing

Buyers Adjust to the New Normal

Despite elevated rates, buyer demand is steady, particularly among households undergoing life changes. Redfin’s Homebuyer Demand Index rose 7% year-over-year in December 2024, and Fannie Mae’s Home Purchase Sentiment Index reached its highest level since early 2022.

At the same time, 86% of mortgage holders remain locked into sub-6% rates, a figure slowly declining from 93% in 2022. This “lock-in effect” continues to limit inventory but may ease further if mortgage rates begin to soften.

New Construction Gains Ground

With resale listings constrained, new homes make up about 30% of total housing inventory, double the historical average. Builders are actively ramping up production and offering incentives such as mortgage rate buydowns and closing cost assistance to attract buyers.

As of late 2024, there was 9.5 months of supply of new single-family homes, and 25% were move-in ready, giving buyers more negotiating power.

Doug Bauer, CEO of Tri Pointe Homes, remains optimistic: “We have the levers to meet unmet demand.”

Rising Costs and Changing Industry Rules

Homeownership costs continue to rise well beyond mortgage payments. According to Bankrate, non-mortgage costs now exceed $18,000 annually, including taxes, insurance, maintenance, and utilities. Combined with mortgage payments, the average total cost of ownership is approaching $3,800/month, compared to $2,236 for the average rent.

In addition, the real estate industry is undergoing structural change:

  • NAR’s commission settlement is altering how agents are compensated.

  • Buyer’s agents now often require signed agreements before showings.

  • The Clear Cooperation Policy (CCP) is under review, potentially impacting how listings are shared across brokerages and MLS platforms.

Long-Term Outlook: Supply Constraints and Recovery

Several long-term trends are expected to shape the market through 2029:

  • A shortage of 4.5 million homes will continue to limit supply.

  • Home prices are projected to rise ~17% from 2024, outpacing inflation slightly.

  • Existing home sales will recover gradually, while new home sales expand.

  • Rent growth will continue, particularly in the single-family sector.

One regulatory factor to watch: HUD and USDA energy-efficiency mandates could add more than $30,000 to the cost of new homes, potentially restricting affordability unless revisions are made before adoption by mortgage giants Fannie Mae and Freddie Mac.

Bottom Line:
Through 2029, the housing market will navigate a complex mix of elevated interest rates, policy shifts, and ongoing affordability concerns. Yet housing’s rising GDP share and robust new construction activity signal strong underlying momentum. The evolving market landscape still holds meaningful opportunities for buyers, builders, and investors willing to adapt.

Portions of this report are based on data and reporting from U.S. News & World Report, the Bureau of Economic Analysis, Redfin, Bankrate, First American, Realtor.com, and the National Association of Realtors.