Written by David Dodge 

The real estate market is poised for significant changes in 2025, influenced by new policies, shifting economic conditions, and evolving housing demands. With various states implementing laws that could impact homebuyers, sellers, and renters, understanding these shifts is crucial for making informed decisions in the market.

Political and Economic Influence on the Market

New presidential administrations often bring policy shifts that affect market confidence and transaction timing. As McKenzie Ryan, real estate agent and founder of her eponymous team at Douglas Elliman, explains, "A new administration always has an impact on the confidence or lack thereof that people have in the real estate market and their timing of when you buy or sell." Many buyers and investors are waiting to see how federal policies will unfold before making major financial commitments.

However, Ryan also notes that market uncertainty has been a persistent issue for several years. "It has been a long journey of uncertainty since 2020," she says. While political changes play a role, larger economic trends, such as inflation and interest rates, also contribute to market fluctuations.

Expanding Affordable Housing Initiatives

Photo by Mikael Blomkvist

Addressing the nationwide housing shortage, several states have introduced new laws to encourage affordable housing development. In California, modifications to Senate Bill 9 streamline the process of creating duplexes and subdividing single-family lots. Previously, vague local regulations hindered these projects, but the latest amendments clarify that projects can only be denied if they pose a public health or safety risk.

Similarly, New York City's City of Yes for Housing Opportunity initiative is making it easier to repurpose commercial buildings into residential units, helping to alleviate housing demand in high-density areas.

Accessory dwelling units (ADUs) are also becoming more prevalent. States like Arizona and Nebraska have introduced legislation allowing ADUs on residential lots, while Texas lawmakers are working to remove restrictions that have historically limited these housing options. The rise of ADUs and multifamily developments could provide more affordable housing alternatives across the country.

New Regulations Impacting Renters and Landlords

Regulatory changes aren’t just benefiting homebuyers—renters are also seeing positive shifts. In New York City, the Fair Chance Housing Act now limits landlords' ability to consider an applicant’s criminal history, only allowing background checks after a housing offer has been made. According to Ryan, this law could foster more diverse and inclusive neighborhoods while also affecting property owners who must comply with these regulations.

Additionally, the FARE Act in New York City prevents landlords from passing brokerage fees onto prospective tenants, making renting more financially accessible.

The Rise of Mansion Taxes

High-end real estate transactions are facing new tax burdens. The so-called "mansion tax," which has already been implemented in Los Angeles, is expanding to states like New York, New Jersey, Maryland, Connecticut, Hawaii, Illinois (Evanston), and Washington, D.C. These taxes apply to properties above a certain price threshold—such as Los Angeles’ additional 4% tax on properties valued at $5 million or more—and could make luxury real estate purchases significantly more expensive.

Interest Rates and Mortgage Affordability

One of the most talked-about topics in real estate is whether mortgage interest rates will remain low under the new administration. "It could continue to stimulate the housing market by making mortgages more affordable," Ryan shares. However, uncertainty remains, as interest rates may fluctuate depending on broader economic conditions. Regardless of rate changes, many buyers are adjusting to the reality that monthly mortgage payments may be higher than in previous years.

What This Means for You

Whether you're a homebuyer, investor, or renter, 2025 is shaping up to be a pivotal year in real estate. With new regulations promoting affordability and accessibility, these changes could present opportunities for those looking to enter the market. Keeping a close eye on evolving policies and market trends will be key to making informed real estate decisions this year.

As we move deeper into 2025, it will be crucial to monitor how interest rates, housing supply, and economic conditions influence market trends. If the current pace continues, Metro East could see sustained growth, benefiting both homeowners looking to sell and buyers aiming to invest.