The average rate of a 30-year fixed mortgage remained above 7% in the past week, which is the highest level in the last six months.
Rising borrowing costs have led to sharp declines in home purchases through 2024, and buyers are still not flooding the market. In the first week of the new year, mortgage applications were 15% lower than the same period last year, according to the Mortgage Bankers Association.
Several factors have pushed rates higher this winter. Strong economic data has declined expectations of a reduction in interest rates by the Federal Reserve and caused 10-year Treasury yields (a key benchmark for home loan rates) to rise. A concern with the coming administration of Donald Trump it will fuel inflation and an increase in the government debt deficit has shaken the mortgage market.
Based on the current situation, a a significant drop in mortgage rates before the spring season for buying apartments is unlikely, according to Valerie Sanderschief executive strategist at the National Association of Mortgage Brokers.
In the absence of a reduction in inflation or a sharp weakening of working conditions, mortgage rates will remain close to 7% for some time, he said. Keith Gumbingervice president of mortgage site HSH.com.
What will affect mortgage rates this month?
With much uncertainty in financial markets, rates could see big jumps and volatility this month, especially around the January 20 presidential inauguration.
“As for whether or not we see a recalibration in the next few weeks, that depends on what the president-elect says and what he does when he actually takes office,” he said. Jacob channelsenior economist at LendingTree. If Trump declared an economic emergency to impose tariffs or did something like declare war on Denmark, mortgage rates would rise even more, Kanal said.
A week after Trump takes office, the Fed will hold its first policy meeting of the year.
Although economists believe the Fed will leave interest rates unchanged on Jan. 29, investors will be looking for any clues as to how the outlook may change under the new administration. The Fed has already made three interest rate cuts since September, but with no evidence of lower inflation or a a weaker labor marketit may be a while before we see further reductions.
The Fed influences the direction of overall borrowing rates but does not directly control the mortgage market. Investors worry about the Fed's rate adjustment prospects as it affects their trading strategy and risk assessment. That's why market forces often move in anticipation of Fed policy moves, relying on economic data and projections to gauge their expectations of the bond market.
“Since the rise in bond yields is due to anticipation of future events, if the narrative changes, bond yields could change,” he said. Kara Ngsenior economist at Zillow.
Mortgage rates could see more volatility in 2025
Aside from typical daily fluctuations, mortgage rates they are expected to remain above 6.5% for the next few months. If inflation continues to cool and the Fed can make two 0.25% cuts, mortgage rates could inches down closer to 6.25% later in the year.
But the new administration, changes in the geopolitical outlook and the risk of inflation returning all have the power to dramatically change that forecast.
How do investors react to political announcements and changes in policythere will not be much stability in the mortgage market. “Unless the president-elect's tone becomes much more moderate and disciplined once he takes office, expect volatility to remain widespread,” Kanal said.
While a sharp drop in interest rates is not impossible, it would take a sudden economic shock, such as the onset of a recession or a spike in oil prices, for mortgage rates to turn around. “Drastic changes in direction are usually the result of some significant event occurring somewhere that shakes up the financial markets,” Gumbinger said.
What affects the housing market in 2025?
Today's unaffordable housing market result of high mortgage rates, a long-term housing shortageexpensive home prices and loss of purchasing power due to inflation.
🏠 Low housing inventory: A balanced housing market typically has five to six months of supply. Most markets today average about half that amount. According to Freddie Macwe still have a shortfall of about 3.7 million homes.
🏠 Increased mortgage rates: In early 2022, mortgage rates hit historic lows of around 3%. As inflation rose and the Fed raised interest rates to tame it, mortgage rates more than doubled. In 2025, mortgage rates are still high, pricing millions of potential buyers out of the housing market.
🏠 Rate Lock Effect: Because the majority of homeowners are locked in mortgage rates below 5%, they don't want to give up their low mortgage rates and have little incentive to list their homes for sale, leaving a dearth 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.
🏠 Big inflation: Inflation means an increase in the price of basic goods and services, a decrease in purchasing power. It also affects mortgage rates: when inflation is high, lenders typically raise interest rates on consumer loans to ensure profits.
Is it better to wait or buy?
It's never a good idea to rush buying a home without knowing what you can afford, so establish a clear home buying budget. Here's what experts recommend before buying a home:
💰 Build your credit score. Your credit score will help 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. Bigger advance payment 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.
💰 Shop for mortgage lenders. Comparing loan offers from multiple mortgage lenders can help negotiate a better rate. Experts recommend getting at least two to three loan appraisals from different lenders.
💰 Consider renting. The choice to rent or buy a home it's not just comparing monthly rent to a mortgage payment. Renting offers flexibility and lower upfront costs, but buying allows you to build wealth and have more control over housing costs.
💰 Consider mortgage points. You can get a lower mortgage rate by shopping mortgage pointswhere each point costs 1% of the total amount of the loan. One mortgage point is equal to a 0.25% reduction in your mortgage rate.