New year, new real estate market? Not exactly.
In early 2025affordability remains a major challenge for potential buyers, with listing rates and prices proving sticky, said Joel Bernersenior economist at Realtor.com.
The average rate for a Fixed mortgage over 30 years started 2025 at almost 7%, just above its level last January.
“Several key factors can cause mortgage rates to rise or fall,” said Valerie Saunderschief strategist for the National Association of Mortgage Brokers. The mortgage market is deeply impacted by inflation, Federal Reserve Policiesbond prices, GDP growth and employment figures, to name a few.
Based on current economic conditions, a significant drop in mortgage rates before the spring home-buying season is unlikely, according to Saunders.
Additionally, given recent strong economic data and speculation that President-elect Donald Trump tax, immigration and tariff proposals While inflation will pick up, the Fed expects a much slower pace of interest rate cuts by the agency in 2025.
With so much uncertainty, the only sure thing is that mortgage rate forecasts always changes. “Buyers should not worry about the timing of the mortgage rate market, but instead should focus on finding a home that fits their budget and making as large a down payment as possible,” Berner said.
Learn more: Mortgage Rate Forecast for 2025
Where will mortgage rates go in 2025?
Aside from typical daily fluctuations, mortgage rates are expected to remain above 6.5% over the coming months. If inflation continues to cool and the Fed manages to implement its two planned 0.25% cuts, mortgage rates could fall closer to 6.25% later in the year.
Today’s rates appear high compared to recent ones rate of 2% of the pandemic era. But experts say the interest rate is unlikely to fall below 3% on a 30-year fixed mortgage without a severe economic downturn. Since the 1970s, the average rate of a Fixed mortgage over 30 years was around 7%.
Only a sudden economic shock, such as the start of a recession or a spike in oil prices, could cause mortgage rates to fall, said Keith Gumbingervice president of the mortgage site HSH.com. “Drastic management changes are usually the result of a big event happening somewhere that shakes up financial markets.”
What will affect short-term mortgage rates?
The biggest unpredictable factor in mortgage rates is the economic policies of the new administration. Trump’s proposed tax and tariff reductions could boost demand, increase deficits and send inflation soaring again. Mortgage rates are very sensitive to inflation.
“Tax cuts, tariffs and mass evictions are all inflationary measures that would indirectly raise mortgage rates while directly increasing the cost of building and purchasing housing,” Berner said. If these policies are implemented more quickly than markets expect, they could cause mortgage rates to rise just as quickly, Berner said.
Higher inflation would also prompt the Fed to delay future rate cuts. Even though the Fed influences the direction of overall borrowing rates, it does not directly control the mortgage market.
Nonetheless, investors care about the Fed’s future rate adjustment prospects because it determines their business strategy and risk assessment. This is why market forces often move in anticipation of the Fed’s policy actions.
Average 30-year fixed mortgage rates closely monitor bond yields, particularly 10-year Treasury yields. If unemployment is expected to rise, bond yields and mortgage rates will fall. But if the result does not match market expectations, returns can quickly increase or decrease.
Mortgage rates are also influenced by geopolitical events, including military conflicts and elections. Political instability can lead to economic uncertainty, which can lead to greater volatility in bond yields and mortgage rates.
Bond market investors would need to be convinced that the economy is slowing for mortgage rates to reverse their trend. This is why, in the absence of a further slowdown in the inflation trend or a sudden weakening of working conditionsmortgage rates will stay near 7% for some time, Gumbinger said.
What impact will the real estate market have in 2025?
Today unaffordable housing market results from high mortgage rates, a long-standing housing shortagehigh property prices and a loss of purchasing power due to inflation.
🏠 Low housing stock: A balanced real estate market generally has five to six months of supply. Today, most markets average about half that amount. According to Freddie MacWe are still missing around 3.7 million housing units.
🏠 High mortgage prices: At the start of 2022, mortgage rates reached historic lows of around 3%. As inflation rose and the Fed raised interest rates to control it, mortgage rates more than doubled. In 2025, mortgage rates are still high, excluding millions of potential buyers from the real estate market.
🏠 Rate lock effect: Since the majority of owners are stuck on mortgage rates below 5%, they are reluctant to give up their low mortgage rates and have little incentive to put their homes up for sale, resulting in a shortage of resale inventory.
🏠 High house prices: Although demand for home purchases has been limited in recent years, home prices remain high due to a lack of inventory. The median home price in the United States was $429,963 in November, up 5.4% year-over-year, according to Redfin.
🏠 High inflation: Inflation means an increase in the cost of basic goods and services, thereby reducing purchasing power. This also impacts mortgage rates: When inflation is high, lenders typically increase interest rates on consumer loans to secure a profit.
Is it better to wait or buy?
It’s never a good idea to rush buy a house without knowing what you can afford, so set a clear home buying budget. Here’s what experts recommend before buying a house:
💰 Build your credit score. Your credit score will help you determine if you qualify for a mortgage and at what interest rate. A credit score of 740 or more will help you qualify for a lower rate.
💰 Save for a bigger down payment. A bigger one deposit allows you to take out a smaller mortgage and get a lower interest rate from your lender. If you can afford it, a down payment of at least 20% will also eliminate private mortgage insurance.
💰 Research mortgage lenders. Comparing loan offers from multiple mortgage lenders can help you negotiate a better price. Experts recommend getting at least two to three loan estimates from different lenders.
💰 Consider renting. Choose to rent or buy a house is not just about comparing a monthly rent to a mortgage payment. Renting offers flexibility and lower upfront costs, but buying allows you to build wealth and better control your housing costs.
💰 Consider mortgage points. You can get a lower mortgage rate by purchasing mortgage pointseach point costing 1% of the total loan amount. One mortgage point is equivalent to a 0.25% reduction in your mortgage rate.
Learn more about today’s real estate market
