The housing market has faced persistent headwinds over the past few years. When skyrocketing inflation and recession fears doubled mortgage rates from 3.5% to nearly 7% in 2022, it marked an end to the Covid-era housing boom. 

Years later, mortgage rates have remained stubbornly high while home prices surge, keeping the housing market gridlocked. Purchasing a home has become unattainable for many first-time homebuyers, while high rates and low demand have discouraged sellers from listing their homes.

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Although it may take longer than expected to recover, many housing experts now believe that mortgage rates will decline next year, leading to a modest market recovery in 2026.

Berkshire Hathaway HomeServices recently released its real estate market forecast for Q4 2025, and the firm expects the housing market to soften. 

However, the market will likely face the same changes through the remainder of 2025.

Rising home prices, high mortgage rates, and a lack of affordable housing options have weakened homebuyer demand over the past few years. Berkshire Hathaway HomeService offers its Q2 2025 real estate market forecast.

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Berkshire Hathaway HomeServices expects housing market to soften this year, but mortgage rates won’t fall until 2026

Many homebuyers have stayed on the sidelines, waiting for housing market conditions to improve before buying a home. Elevated mortgage rates, the rising cost of living, and saving for a down payment have continued to delay homeownership for many potential buyers.

As a result, housing sales have been muted this year — even during the typically busy spring and summer seasons.

Although mortgage rates are unlikely to fall notably this year, Berkshire Hathaway HomeServices expects overall market conditions to improve modestly next year.

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“While forecasts suggest a softening housing market, most economists believe that home prices are unlikely to fall dramatically,” the Berkshire Hathaway HomeServices blog noted.

“Instead, they expect prices to continue rising — just at a slower pace. Slightly lower rates might encourage buyers to act, especially if more sellers list homes to beat any potential price correction. That could increase inventory and put downward pressure on prices.”

Related: White House advisor clashes with Fed on mortgage rates, housing market

Despite initial projections of mortgage rates inching toward 6% in 2025, rates will still hover between 6.5% and 7% by the end of this year. While there is hope for improvement in 2026, it will likely be moderate.

“As for the forecast for Q4 2025, most housing experts agree that meaningful relief may not arrive until 2026 or later, as mortgage interest rates are unlikely to decline significantly.”

Berkshire Hathaway HomeServices flags a growing housing market affordability issue

Lack of affordable housing inventory has plagued the market for years, feeding into the current market gridlock. Homebuyers are competing for a limited number of houses within an affordable range, pricing out many Americans in the process. 

However, conditions are improving, as Redfin recorded sustained inventory growth in May, with sellers outnumbering buyers by nearly 500,000.

“Lack of supply was among the reasons why housing is so expensive, so with more homes for sale, will housing prices come down? There’s a good chance they will, but not uniformly across the U.S.,” the blog continued.

While the projected slowed home price growth will likely stimulate the housing market, it may produce lopsided growth.

“Still, a major issue remains: the lack of affordable homes, especially for first-time and lower-income buyers. According to NAR, in Q1 2025 only 1 in 5 listings were affordable to households earning $75,000 — compared to half of all listings before the pandemic. To restore affordability, the U.S. would need to add over 400,000 listings priced at $255,000 or below — and even that may fall short of what’s needed.”

There is clear demand for mid-range, affordable homes, but tariff-fueled price hikes on building materials may make it difficult to achieve.

Related: Warren Buffett’s Berkshire Hathaway predicts major housing market shift soon