2025 Housing Market Favors Investors as Mortgage Rates Ease but Prices Climb
The housing market in 2025 showed mixed trends, with mortgage rates slowly dropping and home prices rising modestly. While many Americans hesitated to buy due to low existing mortgage rates, investors found opportunities in real estate trusts. The year also saw a steady increase in housing supply, though affordability remained a challenge in major cities.
Mortgage rates started 2025 near 7% but fell to an average of 6.15% by November. This gradual decline did little to spur buying activity, as 88.5% of homeowners already held mortgages below 6%. Many potential buyers chose to wait, hoping for further rate cuts in 2026, which could save them around $85 per month—or $30,600 over 30 years.
Housing inventory continued to grow, rising for the 25th consecutive month in November, up 12.6% year-over-year. Despite this increase, supply shortages persisted, particularly in metropolitan areas like Berlin and Frankfurt, where prices climbed faster than the national average. Meanwhile, rural regions saw little to no growth. For investors, mortgage REITs delivered strong returns in 2025, averaging 12.1%. Real Estate Investment Trusts (REITs) also offered attractive dividend yields of 4%-6%, making them a viable alternative for those wary of buying property. Renters faced tougher decisions, weighing potential rent hikes against job security before considering homeownership. Looking ahead, mortgage rates are expected to keep falling in 2026, possibly ending the year in the high-5% range. Home prices, however, are forecast to rise by 1%-4%, keeping affordability tight. Stricter income regulations from 2026 could also force lower-income renters to relocate, adding pressure to an already constrained market.
The 2025 housing market favoured investors over buyers, with REITs outperforming and mortgage rates remaining a barrier for many. As rates decline further in 2026, some buyers may re-enter the market, though price growth and supply issues will persist. Renters and lower-income households, however, face rising costs and potential displacement due to regulatory changes.
