US Housing Outlook: Market in need of rate relief that is not coming

President Trump’s inflationary trade and immigration policies leave no clear path to the lower borrowing costs that the housing market desperately needs. A tariff-driven resurgence in inflation will likely keep the Fed from cutting this year, keeping mortgage rates near 7.0%. Some relief may come in 2026 and 2027 as rates drop back to 6.5%. Nonetheless, with affordability still stretched, we expect existing home sales to remain weak at less than 4.6m annualised. Homeowners are slowly adjusting to the higher-rate environment, prompting more to list their homes despite the financial disincentive. We expect this slow recovery in supply to continue to keep a lid on house price inflation. We are forecasting a soft 3.5% house price gain in 2025 ahead of a slight acceleration in 2026 as demand begins to recover. Newbuilds will remain competitive even as resale supply improves, supported by generous builder incentives. As tariffs squeeze builder margins, however, we still expect single-family starts to decline to 0.97m annualised by year-end and 0.93m by end-2026. In the rental market, new supply has peaked and demand remains firm, so we expect the vacancy rate to fall to 5.2% by end-2027 and rent growth to climb to 2.5%.