After a year of fluctuating mortgage rates and stubborn inflation, many potential homebuyers are wondering if mortgage rates will decrease to more affordable levels in 2025.
Despite a recent slight drop in mortgage rates, they are still at historically high levels. According to the latest data from Freddie Mac, as of the week ending November 27, the average interest rate for a 30-year fixed-rate mortgage stood at 6.81%, a decrease of 0.41% from the same period last year.
Factors affecting mortgage rates, such as inflation, saw a slight increase in October after mortgage rates had dropped to a two-year low in September before rising again. The Federal Reserve cut rates for the second consecutive time at its November policy meeting, but it had little impact on lowering mortgage rates, partly due to the high yields on 10-year Treasury bonds.
With the strong economy and inflation not meeting the Fed’s expectations, some economists foresee the Fed pausing or significantly slowing down rate cuts at its December meeting.
However, mortgage rates are also influenced by factors such as housing supply and demand, labor market strength, and geopolitical issues, which fluctuate in different directions.
So, what do experts think about mortgage rates and the housing market in 2025?
According to Zillow’s analysis, potential homebuyers can expect to see fluctuations in mortgage rates in 2025.
The Economic and Strategic Research (ESR) Group at Fannie Mae predicts a slight decrease in the 30-year fixed mortgage rate in 2025, with rates expected to approach 6.30% by the end of the year. The ESR Group forecasts rates to remain above 6% in 2026.
The Mortgage Bankers Association (MBA) predicts that mortgage rates in 2025 will range between 6.40% and 6.60%. The organization also forecasts that mortgage rates in 2026 will stabilize at 6.30%.
Therefore, those expecting a significant decrease in mortgage rates in 2025 and beyond may once again face uncertainty.
Zillow advises homebuyers to be prepared and act swiftly when the right opportunities and conditions arise. It’s also essential to assess how a slight decrease in rates could impact the overall cost of homeownership.
Here is an analysis based on loan amount and interest rate of the monthly payments in principal and interest:
$250,000 at 6%: $1,499
$250,000 at 7%: $1,663
Difference: $164
$1,000,000 at 6%: $5,996
$1,000,000 at 7%: $6,653
Difference: $657
As seen, even small changes in mortgage rates can significantly impact higher mortgage amounts.
In addition to mortgage rates, homebuyers need to consider other factors. Due to inventory issues affecting the market, housing prices have remained high in 2024. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), analyzed that both new and existing home inventories are increasing.
While housing construction may eventually alleviate price increases, overall inventory remains low currently, and prices are expected to continue to rise slightly over the next two years.
According to NAR’s existing home sales data, the median price for existing homes in October was $407,200, marking the sixteenth consecutive month of year-over-year price increases.
NAR forecasts that the median home price in 2025 is projected to increase to $410,700 (a 2% increase from 2024). The organization expects the median home price in 2026 to climb to $420,000.
Despite affordability concerns persisting, homebuyers can anticipate fierce competition in the market.
José Torres, Senior Economist at Interactive Brokers, expressed in an email to the media, “Informal evidence suggests that buyers and sellers have abandoned waiting for lower mortgage rates and employment growth, a strong stock market, and inventory improvements are attracting potential buyers to the negotiation table.”
After the contentious presidential election, Donald Trump is back in the White House. Experts have varied views on how Trump and the Republican-led Congress may impact the real estate market in the coming years.
According to Realtor.com’s forecast, some anticipate that proposed tariffs by the newly elected president could increase inflation pressure, potentially leading to rate hikes, including mortgage rates.
Additionally, there are speculations that Trump’s immigration policies might affect labor costs and housing construction plans.
Nevertheless, many builders remain optimistic post-election. For instance, the NAHB/Wells Fargo Housing Market Index rose from 43 to 46 in November, reaching its highest level in seven months.
Torres mentioned, “This result reflects optimism about the Trump administration’s intent to ease regulations,” noting that some builders believe that buyers who hesitated to sign contracts due to presidential campaign concerns may start house-hunting again after the election.
While many experts predict a slight decrease in mortgage rates in 2025, they also forecast that in the new year and in 2026, mortgage rates will likely remain above 6%. Simultaneously, the median home price is expected to continue a modest upward trend.
The real estate market may face ongoing pressure from inflation uncertainties, supply and demand dynamics, and the Fed’s monetary policy.
Therefore, those expecting a significant drop in mortgage rates in 2025 may find themselves waiting longer in the market.
Nevertheless, many experts believe that a strong economy, robust labor market, potential tax cuts, and an active stock market can ultimately make homeownership more affordable despite high mortgage rates and housing prices.
Those able to find affordable and reasonably priced housing today may want to act promptly. While there is uncertainty in the rate environment, potential homebuyers still have time to improve their creditworthiness to secure the best rates.