Like the groundhog’s long shadow, the housing market continues to be clouded in the chill of higher mortgage rates and an uncertain economy as 2025 gets underway.

With inflation and interest rates in limbo, no one can say for certain whether the market will experience a spring thaw or remain stuck in deep freeze.

Throughout 2024, voters weighed their choices as politicians on both sides of the aisle pitched pledges to lower housing costs and build more homes.

Amid 2024’s strong economy, mortgage rates remained high. With inflation still stubborn in some sectors, new President Donald Trump grudgingly agreed with the Federal Reserve vote to hold steady on its baseline rates in January, after three cuts in late 2024. As a result, mortgage rates will likely stay elevated.

While the Fed doesn’t directly set mortgage rates, the rates for all consumer loans, including home loans, tend to follow the Fed rate trajectory over time. Odds for the first cut of 2025 coming in May are at about 50%.

However, the softer December inflation recently led to moderating bond yields, often a positive sign for future rates. Policymakers have signaled future decisions will be data driven. If inflation trends downward, the Fed could lower its interest rates multiple times.

Economists are generally optimistic about the housing market in 2025, predicting lower mortgage rates and pent-up demand will drive more home sales. Rising home prices are expected to continue, making affordability the biggest challenge to homeownership. This could push more potential buyers into the rental market, which is expected to be more affordable.

For homebuilders, optimism is on the rise after the Republican sweep of the White House and Senate. Many hope regulatory burdens will ease under the new administration, though high interest rates are a huge barrier. Potential immigration restrictions could also affect the construction workforce.

Threatened tariffs on building materials sourced from Canada and Mexico could also lead to higher home prices.