2025 Year End Review: Market Recap

As we wrap up 2025, I wanted to take a step back and look at the big picture—what actually happened in the economy, mortgage rates, and housing this year, and what it likely means as we head into 2026.

This year was all about cooling, correcting, and stabilizing after several years of extreme swings. Here’s the simple breakdown.

The Labor Market Is Weakening (And That Matters)

One of the biggest economic stories of 2025 was the labor market.

Throughout the year, the unemployment rate steadily increased, finishing at 4.6%. Earlier in the year, unemployment hovered around the low 4% range, but as the months progressed, job growth slowed and unemployment crept higher.

Why this matters:

• Rising unemployment is one of the strongest recession indicators

• Historically, when unemployment rises, mortgage rates tend to improve

  

While a weakening job market is not good news for the economy overall, it does help explain why we’ve seen mortgage rates move lower toward the end of the year.

Inflation Finally Cooled Down

Inflation was the Fed’s main battle over the last few years, and in 2025 we finally saw meaningful progress.

• Consumer Price Index (CPI) dropped from 3.0% to 2.7%

• Shelter and rent inflation slowed significantly

• Inflation is now less than half of where it peaked in 2022

At this stage, inflation improvements are expected to be slow and incremental, not the rapid drops we saw previously. That’s normal and healthy as the economy stabilizes.

Fed Rate Cuts Don’t Directly Control Mortgage Rates

In 2025, the Federal Reserve cut the Fed Funds Rate three times—in September, October, and December.

However, one of the biggest misconceptions is believing that:

That’s not how it works.

Mortgage rates respond primarily to:

• Inflation trends

• Employment data

• Overall economic expectations

In fact, there were days when the Fed cut rates and mortgage rates actually moved higher. The broader economic picture matters far more than a single Fed decision.

Mortgage Rates Are at 2025 Lows

Despite the ups and downs, mortgage rates finished the year in a much better place.

• Rates are near their lowest levels of 2025

• The trend is positive: lower highs and lower lows

• VA and FHA rates remain about 0.5% lower than conventional rates on average

• Rates change daily, not weekly or monthly

The most important data points to watch moving forward remain:

• Monthly jobs reports

• Inflation reports

Home Prices: Slower, Not Falling

Home values were one of the most misunderstood topics this year.

Yes, appreciation slowed—but prices did not collapse nationally.

• National home price appreciation is around 2–3%

• Home values are still increasing, just at a healthier pace

• The massive appreciation from 2020–2022 was unsustainable

To put it into perspective:

• A $400,000 home bought in 2019 could be worth close to $600,000 today

• That level of growth was driven by ultra-low rates, high demand, and low inventory

• Today’s slower appreciation is a return to normal market conditions

Slower appreciation is actually good for long-term affordability and market stability.

What This Means Going Into 2026

Looking ahead, a few things stand out:

• As mortgage rates improve, more buyers will slowly return

• Housing inventory is still limited, which supports prices

• Appreciation is likely to continue—but at more sustainable levels

• Extreme bidding wars like 2021–2022 are unlikely to return soon

This is the type of environment where informed buyers, especially VA buyers, can make strategic moves without the chaos of the past few years.

Government Shutdown Watch

One important wildcard heading into early 2026 is the federal budget.

• Government funding is only extended through January

• A shutdown is possible as early as February

• Federal employees and military members should plan conservatively and be prepared

Final Thoughts

2025 was a year of adjustment:

• The economy slowed

• Inflation improved

• Mortgage rates moved lower

• Housing began stabilizing

While the last few years were extreme on both ends, the current market looks much more balanced and sustainable. Real estate remains one of the strongest long-term wealth-building tools—but the days of instant, double-digit appreciation are likely behind us for now.

I’ll be putting together a full 2026 market forecast soon to break down what to expect next.

If you want a deeper understanding of how these trends impact VA buyers and VA house hackers specifically, feel free to reach out or get on the waitlist for the next VA House Hacker program.

—Lee NguyenVA Home Loan Specialist | VA House Hacker