New year, new housing market? Not exactly.
In the beginning of 2025affordability remains a major challenge for potential homebuyers, with rates and listing prices proving sticky, said Joel Bernersenior economist at Realtor.com.
The average rate for a 30-year fixed mortgage started 2025 near 7%, just above where it was last January.
“Several key factors can cause mortgage rates to rise or fall,” he said Valerie Sanderschief executive strategist at the National Association of Mortgage Brokers. The mortgage market is deeply affected by inflation, Federal Reserve Policiesbond prices, GDP growth and employment numbers, to name a few.
Based on current economic conditions, a a significant drop in mortgage rates before the spring home buying season is unlikely, according to Saunders.
Moreover, given recent strong economic data and speculation that President-elect Donald Trump tax, immigration and tariff proposals will stoke inflation, the Fed projects a much slower pace of rate cuts than the agency in 2025.
With so much uncertainty, the only certainty is that mortgage rate forecasts they are always changing. “Buyers shouldn't worry about the timing of the mortgage rate market, but should focus on finding a home that fits their budget and making as large a down payment as possible,” Berner said.
Read more: 2025 Mortgage Rate Forecast
Where will mortgage rates go 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 ease and the Fed is able to implement the planned two 0.25% cuts, mortgage rates could drop closer to 6.25% later in the year.
Today's rates seem high compared to recent ones 2% rates of the era of the pandemic. But experts say getting below 3% for a 30-year fixed mortgage is unlikely without a severe economic downturn. Since the 1970s, the average rate for a 30-year fixed mortgage is about 7%.
Only a sudden economic shock, such as the onset of a recession or a spike in oil prices, could cause mortgage rates to fall, he said. Keith Gumbingervice president of mortgage site HSH.com. “Drastic changes in direction are usually the result of some significant event occurring somewhere that shakes up the financial markets.
What will affect mortgage rates in the near future?
The biggest wild card for mortgage rates is the new administration's economic policies. of Trump proposals for tax cuts and tariffs it can stimulate demand, increase deficits and cause inflation to rise again. Mortgage rates are very sensitive to inflation.
“Tax cuts, tariffs and mass deportations are all inflationary measures that would indirectly increase mortgage rates while directly increasing the cost of building and buying homes,” Berner said. If these policies are implemented more quickly than markets expect, it could result in an equally rapid rise in mortgage rates, Berner said.
Higher inflation would also encourage 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.
However, investors worry about the Fed's future rate hike outlook as it determines their trading strategy and risk assessment. That's why market forces often move in the wake of Fed policy moves.
Average 30-year fixed mortgage rates keep a close eye on bond yields, especially 10-year Treasury yields. If unemployment is expected to rise, bond yields and mortgage rates will fall. But if the outcome doesn't match market expectations, yields can quickly move higher or lower.
Mortgage rates are also affected by geopolitical events, including military conflicts and elections. Political instability can lead to economic uncertainty, which can result in greater volatility with bond yields and mortgage rates.
Investors in the bond market need to be convinced that the economy is cooling in order for mortgage rates to change course. Therefore, in the absence of a new reduction in the inflation trend or a sudden weakening of working conditionsmortgage rates will remain close to 7% for some time, 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 a five to six month 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 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 higher 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. Choosing 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 equals a 0.25% reduction in your mortgage rate.