New year, new home market? Not exactly.
He said affordability remains a major challenge for prospective homebuyers in early 2025, with interest rates and listing prices proving to remain high. joel burnerSenior Economist at Realtor.com.
The average interest rate on a 30-year fixed mortgage starts in 2025 at nearly 7%, slightly above last January’s level.
“Several important factors could cause mortgage rates to rise or fall,” he said. valerie sandersCEO of the National Association of Mortgage Brokers. The mortgage market is heavily influenced by inflation, Federal Reserve policy, bond prices, GDP growth, and employment statistics, to name a few.
Given the current state of the economy, it’s unlikely that mortgage rates will drop significantly before the spring home buying season, Sanders said.
Additionally, the Fed expects the pace of interest rate cuts to slow significantly in 2025, given recent strong economic data and speculation that President-elect Donald Trump’s tax, immigration and tariff proposals will reignite inflation.
With so much uncertainty, one thing is certain: Mortgage rate projections are constantly changing. “Buyers should not worry about timing the mortgage rate market and should focus on finding a home that fits their budget and making as much of a down payment as possible,” Berner said.
read more: Mortgage interest rate prediction for 2025
What will mortgage interest rates be in 2025?
Apart from typical day-to-day fluctuations, mortgage rates are expected to remain above 6.5% for several months. If inflation continues to subside and the Fed follows through on its planned two 0.25% rate cuts, mortgage rates could gradually fall to near 6.25% by the end of the year.
Current interest rates seem high compared to recent 2% interest rates during the pandemic era. But experts say interest rates on 30-year fixed mortgages are unlikely to fall below 3% without a severe economic downturn. Since the 1970s, the average interest rate on a 30-year fixed mortgage has been around 7%.
Only a sudden economic shock, such as the onset of a recession or a spike in oil prices, could cause mortgage rates to plummet, he said. Keith GumbingerVice President of the mortgage site HSH.com. “A dramatic change in direction is usually the result of a major event occurring somewhere that upends the financial markets.”
What will affect mortgage rates in the short term?
The biggest wild card for mortgage interest rates is the new administration’s economic policy. President Trump’s tax cuts and tariff proposals could stimulate demand, widen the deficit and cause inflation to spike again. Mortgage rates are very sensitive to inflation.
“Tax cuts, tariffs, and mass deportations are all inflationary policies that directly increase the cost of building and buying homes, while indirectly raising mortgage rates,” Berner said. Berner said if these policies are implemented sooner than the market expects, mortgage rates could rise quickly as well.
Rising inflation could also cause the Fed to delay future rate cuts. Although the Fed influences the direction of overall borrowing rates, it does not directly control the mortgage market.
Still, investors are concerned about the future outlook for the Fed’s interest rate adjustments. This is because interest rate adjustments determine trading strategies and risk assessment. That’s why market forces often move in anticipation of Fed policy moves.
The average 30-year fixed mortgage rate is closely linked to bond yields, especially the 10-year Treasury yield. If unemployment is expected to rise, bond yields and mortgage rates will fall. But if the results don’t match market expectations, yields could move up or down quickly.
Mortgage rates are also affected by geopolitical events such as military conflicts and elections. Political instability can lead to economic uncertainty, which can result in greater volatility in bond yields and mortgage interest rates.
Investors in the bond market will need to be convinced that the economy is cooling for mortgage rates to reverse. As a result, mortgage rates are likely to remain near 7% for some time, unless there is a new decline in inflation trends or a sharp deterioration in working conditions, Gumbinger said.
What will impact the housing market in 2025?
Today’s affordable housing market is driven by high mortgage rates, a long-term housing shortage, rising home prices, and a decline in purchasing power due to inflation.
🏠 Low housing stock: A balanced housing market typically has five to six months’ worth of supply. The average in most markets today is about half that. According to freddie macthere is still a housing shortage of approximately 3.7 million units.
🏠 Soaring mortgage costs Fee: In early 2022, mortgage rates reached a historic low of around 3%. Mortgage rates more than doubled as inflation skyrocketed and the Fed raised interest rates to rein in inflation. Mortgage rates will remain high in 2025, forcing millions of potential buyers out of the housing market.
🏠 Rate lock effect: With mortgage rates locked in at less than 5%, most homeowners are reluctant to part with low mortgage rates, have little incentive to put their homes on the market, and resale inventory is scarce. Masu.
🏠 High housing 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 is $429,963 According to Redfin, November saw an annualized increase of 5.4%.
🏠 Rapid inflation: Inflation means that the cost of basic goods and services increases, reducing purchasing power. It also affects mortgage interest rates. When inflation is high, lenders typically increase interest rates on consumer loans to preserve profits.
Should I wait or buy?
It’s never a good idea to rush into buying a home without knowing how much you can afford, so make sure you have a clear home purchase budget. Here’s what experts recommend before buying a home.
💰 Build your credit score. Your credit score helps determine whether you qualify for a mortgage and what interest rate you may qualify for. If your credit score is 740 or higher, you can qualify for a lower interest rate.
💰 Save money by making a bigger down payment. If you have a larger down payment, you can get a smaller mortgage loan and get a lower interest rate from your lender. If you can afford it, a down payment of at least 20% will also eliminate the need for private mortgage insurance.
💰 Find a mortgage lender. Comparing loan offers from multiple mortgage companies can help you negotiate a better interest rate. Experts recommend getting loan quotes from at least two to three different lenders.
💰Consider renting. Choosing whether to rent or buy a home is about more than just comparing monthly rent and mortgage payments. Renting offers flexibility and lower initial costs, while buying allows you to build wealth and have more control over your housing costs.
💰 Consider mortgage points. You can lower your mortgage interest rate by purchasing mortgage points. Each point costs 1% of the total loan amount. One mortgage point equals a 0.25% decrease in your mortgage interest rate.
