With affordability still stretched and borrowing costs elevated, the U.S. housing market faces a consequential year ahead. Policymakers weigh federal housing policy, rent control proposals, and infrastructure investments as builders look to a shifting mortgage rate outlook and persistent urban vacancies.

America’s housing market is ending the year with mixed signals, as buyers confront tight supply and elevated borrowing costs. Despite some cooling in inflation, the housing affordability crisis remains severe in many metros, and debates over federal housing policy have intensified in Washington and state capitals. Analysts say the choices made in early 2025 could shape construction, rents, and neighborhood investment for years.

On the supply side, builders are weighing homebuilder sentiment against input costs, labor availability, and demand trends. A slightly brighter mortgage rate outlook—if the Federal Reserve maintains disinflation and starts cutting—could revive new-home sales, but affordability and regulatory delays continue to cap activity. Many firms are pivoting toward smaller footprints and attached homes to reach price-sensitive buyers.

In large cities, lawmakers are considering rent control proposals to curb displacement, even as developers warn such measures can discourage new construction. Office districts continue to struggle with high commercial vacancy rates, and remote work relocation is reshaping where households settle and shop. Some markets are exploring office-to-residential conversions, though financing and building-code hurdles remain.

Policy attention is also turning to zoning reform, targeted subsidies, and green infrastructure spending that lowers long-run operating costs and enables transit-oriented housing. Supporters argue these moves, coupled with streamlined permitting and stronger tenant protections, can expand supply while cushioning vulnerable renters. The path forward will hinge on coordination across governments and industry, and on whether households finally see incomes outpace housing costs.