NAR’s Yun Predicts: ‘The Worst is Over’ in 2025

WASHINGTON—While noting that there are significant headwinds for the real estate industry this year, such as low inventory, high mortgage rates, tariffs and a record federal deficit, NAR Chief Economist Lawrence Yun predicts “the worst is over” in terms of low home sales and high mortgage rates.

Yun and NAR Senior Economist and Director of Real Estate Research Nadia Evangelou offered a mostly positive outlook on the residential and commercial real estate markets in their “Real Estate and Economic Outlook” virtual presentation on March 21. The two economists predict the housing and office sectors will be in recovery in 2025 with higher sales and lower vacancies respectively.

“My computer model is indicating that (for) home sales, the worst is over. The worst in inventory is over. I think the recession probability is still slim,” Yun said when releasing a modestly revised forecast for this year.

In terms of some of the key metrics, Yun now predicts existing home sales will rise 6% this year and 11% in 2026; new home sales will increase 10% in 2025 and 5% in 2026. The median home sale price is expected to increase overall 3% this year and 4% in 2026. The mortgage rate will average 6.4% this year and 6.1% in 2026 and overall job gains will reach 1.6 million by the end of this year and 2.4 million in 2026.

In his revised outlook, Yun lowered his GDP forecast from 2.1% growth to 1.7% growth in 2025 and increased his predicted national inflation rate from 2.5% to 2.7% this year.

Yun noted that a major factor in the high-interest rate environment is the large federal deficit. He said that the Fed rate cuts in September did little to lower mortgage rates. Yun predicted two to three more rate cuts by the Federal Reserve by the end of this year or into early 2026 that will result in perhaps moderate rate reductions if inflation is kept in check. However, unless tangible measures are taken to reduce the more than $35-trillion federal deficit, the market will continue to see rates in the 6% range this year and in 2026, Yun warned.

On a positive note, Yun related that although home sales have suffered in the last two years, real estate values are near or at record levels in many markets across the country.

In regards to the persistent low inventory, Yun said, “We are starting to see some light at the end of the tunnel,” as for-sale inventory has risen in recent months. However, for the moment, the new home sector has sufficient inventory for sale, while the existing home sales market’s inventory remains at low levels that are insufficient to meet buyer demand.

In terms of economic policy, Yun said tariffs are inflationary, but deregulation has the potential for being disinflationary.

NAR’s Evangelou said the office market is finally showing some signs of improvement, while the multifamily sector, which is overbuilt in some markets, faces some challenges in 2025.

She noted that the national office market posted positive absorption of 2.3 million square feet in the first quarter of 2025, reversing negative absorption rates in 2024. It should be noted that in the first quarter of 2015 (pre-pandemic) the national office space absorption stood at 76.6 million square feet. The national office vacancy rate at the end of the first quarter of 2025 was slightly lower at 13.8%. Ten years earlier it stood at 10.6%.

New York City was a standout performer in the office market, posting 6.5 million square feet of positive absorption at the end of the first quarter of 2025 as compared to a year earlier. Pre-pandemic, New York City was averaging 3.0 million square feet of positive absorption during that same one-year period.

Evangelou said that despite headlines of corporate downsizing programs, “We are also seeing that there is still significant demand for office space in the nation’s largest business hub,” she said. “And office fundamentals in New York City are on the upswing.”

In terms of the multifamily sector, Evangelou reported that at the end of the first quarter of 2025, the national vacancy rate rose to 8.1%, while rent growth remained relatively flat at 1.1%. In the first quarter of 2015, the multifamily vacancy rate stood at 6.3% and rent growth was 3.5%.