U.S. housing economy growth is poised to decelerate in 2025, Fitch Ratings says in our latest U.S. Cross-Sector Housing Monitor.

Cost pressures from higher tariffs and immigration restrictions, together with weakening consumer and homebuilder sentiment, amplify the downside to our various housing market forecasts. Trade protectionism will increase prices on key material construction inputs. Foreign born, non-citizen workers represent an overwhelming share of key specialty construction occupations, and immigration restrictions are likely to raise labor costs.

Tariffs and labor concerns contribute to our forecasts for flat to declining housing starts and completions in 2025 relative to 2024. Housing starts declined by 2.9% year-over-year in February 2025. Home inventory has improved but remains below pre-pandemic levels due to years of below replacement construction and depressed existing home supply.

Limited supply will support home price growth of 3%–4% in 2025, although growth varies by region: northeastern states have seen much faster growth than southern states, which have higher new home inventory.

We are forecasting a 4% increase in new home sales, exceeding pre-pandemic levels, supported by homebuilder incentives. Existing home sales are predicted to rise by 5%, comparable to Great Recession lows.

Mortgage delinquencies have been rising since 2022 due to pressures on weaker borrowers with elevated mortgage rates and rising all-in homeownership costs. Nevertheless, delinquency rates remain low due to the prevalence of low fixed-rate, 30-year mortgages. Rising debt-to-income ratios will contribute to slightly weaker Fitch-rated RMBS loan performance in 2025, with serious delinquencies increasing to 1.7% from 1.4% in 2024.

Mortgage rates remain high despite the Federal Reserve's 100bps cumulative rate cuts since September 2024. We anticipate a single 25bps interest rate cut in 2025, leaving the Fed funds rate at 4.25% by YE. Fitch projects 30-year mortgage rates will end the year at 6.5%.