State of the Market: Recession Fears & Real Estate

The U.S. housing market in early 2025 is stuck in a strange middle ground. Home prices are still climbing. But buyers are more cautious, mortgage rates remain high, and recession worries are building.

Here’s what you need to know.

Home Prices Keep Rising, Just Slower

Despite economic concerns, home prices haven’t dropped. In January, the median existing-home price hit $396,900, up nearly 5% from a year ago. February was similar, with prices still trending upward.

Inventory is improving, but still tight. There were 1.18 million homes for sale, which is higher than a year earlier but still not enough to balance the market. Homes are sitting on the market a little longer, with a median of 41 days compared to 36 last year. But well-priced homes still attract attention.

Sales volume is gradually picking up. Existing-home sales increased 3.1% in January and 9.5% in February, thanks in part to a small bump in inventory and renewed interest from buyers.

Affordability Is Still a Major Issue

Housing affordability is near its worst point in decades. Mortgage rates are hovering around 6.7%, and prices remain high. The National Association of Realtors’ affordability index is close to 100, meaning the typical household barely qualifies for a median-priced home.

According to the National Association of Home Builders, around 75% of U.S. households cannot afford a newly built home. High construction costs, inflation, and elevated interest rates are making homeownership harder to reach, especially for first-time buyers.

Builders Are Still Active, but Getting Cautious

Builders had a strong year in 2024, issuing nearly 982,000 single-family permits nationwide. That trend has mostly continued into early 2025. But momentum is slowing.

In January, single-family permits dropped by about 3.7% compared to a year earlier, according to U.S. Census Bureau data. At the same time, builder confidence dipped, with the NAHB Housing Market Index falling to 39 in March. Builders are citing rising construction costs and uncertainty about new tariffs on imported building materials.

Even with these challenges, the national housing shortage continues to support new construction. Demand remains, especially in affordable markets and growing metro areas.

The Recession Watch

The U.S. is not in a recession yet, but economists are watching closely. The Federal Reserve held rates steady at 4.25% in March and has hinted at possible cuts later this year. But they’re being cautious, especially as new tariffs and inflation pressures cloud the picture.

Here are a few warning signs:

• Unemployment is up to 4.1%, a jump from 3.5% a year ago.
• Consumer confidence is low. The University of Michigan’s Sentiment Index dropped to 57 in March, its lowest since 2022.
• GDP growth is slowing. The Atlanta Fed’s GDPNow estimate for Q1 2025 recently dipped into negative territory.

Some analysts, like JPMorgan, estimate a 40% chance of recession this year. Others expect a soft landing. Either way, recession risk is higher than it was last year.

Buyer Behavior: Cautious but Still Motivated

Even in this environment, buyers haven’t disappeared. In fact, there’s pent-up demand. When mortgage rates drop slightly or a good home hits the market, buyers show up. Purchase applications have been trending upward as the spring season gets underway, according to MBA data.

But the financial strain is growing. Credit card and auto loan delinquencies are at a five-year high, according to VantageScore’s CreditGauge. FHA loan delinquencies are now above 11%, and VA loans have also seen an increase.

Most homeowners still have strong equity and low fixed rates. That has kept foreclosure rates low. But rising delinquencies could signal more trouble ahead if job losses pick up.

What the Rest of 2025 Might Look Like

So, what’s next? Most experts expect home prices to keep rising, but at a much slower pace.

• Fannie Mae predicts a 3.5% increase in home prices this year.
• The Mortgage Bankers Association expects around 1.3% growth.
• NAR expects similar gains.

Mortgage rates could fall slightly by the end of the year, with many forecasts pointing to the 6.0% to 6.3% range. If rates drop meaningfully, it could bring more buyers back into the market, especially those who have been waiting for better conditions.

If a recession hits, demand could weaken. But price drops are expected to be limited due to low inventory and strong homeowner equity. Experts are not predicting a crash.

Bottom Line

The housing market is in a holding pattern. Prices are up, but affordability is stretched. Demand exists, but buyers are cautious. Builders are still working, but facing headwinds. And the economy is slowing, with a real risk of recession.

If inflation eases and rates come down, the second half of 2025 could be more active. If not, we may be in for more of the same: slow growth, tight inventory, and careful buyers.