Home buyers entering the housing market this year face a perfect storm of hardship: rising home prices and down payment expectations, elevated interest rates, and a lack of inventory.
While mortgage rates are one of the biggest stressors, many would-be buyers find that other economic conditions are locking them out of the housing market.
Inflation has prevented buyers from building up their savings, raised home prices, and the cost of materials needed for new construction projects.
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Homeownership has traditionally been viewed as the clearest pathway to building wealth. Still, surging prices and competing financial obligations are delaying this milestone and preventing some Americans from reaching it at all.
2025 was initially predicted to be a year of improvement in the housing market, but sticky mortgage rates, stubborn inflation, and the threat of looming trade wars may hinder buyer confidence and housing market growth.
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Rising prices are making homeownership unattainable
Mortgage rates closed at 6.95% at the end of the month after surpassing 7% in mid-January. Fannie Mae’s Economic and Research Group now predicts that rates will moderate slightly by the end of 2025 to 6.5% and only fall slightly to 6.3% by the end of 2026.
Despite mortgage rates taking longer than expected to recover, consumer sentiment may be softening on the homebuying outlook. Two-thirds of Americans view the housing market as stabilized or improving.
However, rising home prices have become a more significant pain point for buyers.
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46% of consumers cite high listing prices as the biggest housing affordability concern, higher than mortgage rates, down payments, and property taxes. And despite the improvement in housing market sentiment, the majority of Americans still believe it will be harder to purchase a home in 2025.
Inflation has also impacted housing prices and building materials. More expensive homes lead to high down payments, and higher mortgage rates equate to higher monthly mortgage payments.
New policy changes could worsen the current housing affordability crisis.
Building materials and home prices likely to rise with tariffs and deportations
Builders and those in the construction industry have been eagerly anticipating regulatory cuts that would make new home construction faster and cheaper. However, the potential of tariffs imposed upon U.S. trade partners — though recently paused for 30 days— could drive up new home prices.
The Trump administration’s focus on tariffs, immigration, and deportation may have spillover effects on the housing market.
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The National Association of Homebuilders (NAHB) released a statement in response to policies proposed by the Trump administration, noting that 70% of home construction materials are sourced from Canada and Mexico.
“Tariffs on lumber and other building materials increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices,” NAHB chairman Carl Harris wrote in the statement.
Analysts at Redfin note that immigration policies that prioritize deportations or discourage migration will devastate the construction industry, as immigrants make up one-third of the construction labor force. A reduced workforce would slow down housing construction, keeping inventory levels low and increasing prices.
Though the Trump administration announced a pause in proposed tariffs, long-term economic policies and immigration plans are unknown.
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