Housing market outlook: Research firm makes its 2025 home price forecast

Want more housing market stories from Lance Lambert’s ResiClub in your inbox? Subscribe to the ResiClub newsletter.

Home prices soared during the pandemic housing boom, fueled by frantic demand and historically low interest rates, but as the dust settles, the market now seems poised for a calmer, more predictable phase, where modest home price growth could be the new normal for the next few years.

At least, that’s what London-based independent economic research firm Capital Economics is forecasting. In October, the organization predicted that U.S. home prices will rise 4.0% in 2025 and another 4.0% in 2026.

“Given the depth [or lack] of inventory, we wouldn’t expect prices to decline,” Thomas Ryan, North America Economist at Capital Economics, told ResiClub. “We see a new normal for house prices chugging along that are stable and not necessarily falling at all.”

Like most experts who forecast the housing market, Capital Economics is keeping a close eye on how elevated mortgage rates will keep buyer demand constrained into 2025 and 2026. The firm expects mortgage rates to fall to around 6% by the end of 2025, with an incentive to keep rates higher while inventory remains tight.

However, even with mortgage rates remaining higher for longer, Ryan thinks the housing market is due for some increase in activity by the end of 2026.

“I think other forecasts might be overlooking how much housing is driven by life events—people are still going to need to move, even though a large percentage of homeowners are locked in with their current rates,” Ryan said. “There’s probably a significant amount of pent-up selling demand—even if the math doesn’t work out and they have to pay a higher monthly payment for a similar-sized house, they’ll likely have to buy anyway.”

With that in mind, Capital Economics thinks that in 2026, housing inventory will climb—but there won’t be a dramatic upswing.

“Looking at the bigger picture, the lock-in effect will likely continue to support home price growth over the next couple of years,” Ryan says.

The research firm’s macro team also anticipates a robust labor market, a critical factor for maintaining house prices, alongside the market's underlying structural strength.

“There are very few delinquencies, which should support rising house prices,” he says. “However, that doesn't mean we're going to see a rebound, especially with steadily increasing inventory.”