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Real Estate Market Shows Early Cooling Signs
New data reveals the U.S. housing market is experiencing its first significant cooling trend since 2022, with rising mortgage rates cited as the primary driver. The average 30-year fixed mortgage rate has climbed to 6.7% in July 2025, up from 6.1% at the start of the year, according to Freddie Mac data.
Impact on Buyer Behavior
This rate surge is directly impacting buyer demand. Pending home sales dropped 2.7% in June, while existing home sales decreased by 3.4% month-over-month. "We're seeing fewer bidding wars and more price reductions," noted Jessica Lautz, Deputy Chief Economist at the National Association of Realtors®. "First-time buyers are particularly affected as affordability hits record lows."
The Lock-In Effect
A significant factor constraining supply is the "mortgage lock-in" phenomenon. Over 80% of current homeowners have mortgages below 4%, creating strong disincentives to sell. "Why trade a 3% mortgage for 6.7% unless absolutely necessary?" asks Lawrence Yun, NAR Chief Economist. This has kept inventory at just 1.37 million units nationally - 20-30% below historical averages.
Market Outlook for 2025
J.P. Morgan Research forecasts modest 3% home price growth for 2025, a significant slowdown from previous years. The prediction assumes mortgage rates will remain elevated, averaging 6.7% through year-end. New home construction offers some relief, with builders offering more incentives as they compete for fewer buyers.
Policy Impacts
Potential Trump administration policies could further influence the market. Proposed solutions include streamlining zoning approvals and using federal land for housing, though immigration restrictions might exacerbate construction labor shortages. GSE privatization (Fannie Mae/Freddie Mac) could widen mortgage spreads if implemented hastily.
Wealth Effect Buffer
Despite affordability challenges, Yun notes that "homeowners' significant equity and stock market gains provide buffers that should prevent price declines." This wealth effect is expected to maintain positive (though subdued) price growth through 2025.
