Mortgage forecasts for the week of January 13-19: Everything you need to know about interest rates

The average rate of a 30 year fixed mortgage held above 7% in the past week, its highest level in six months.

Rising borrowing costs led to sharp declines in home purchases in 2024. and buyers are not yet flooding the market. In the first week of the new year, applications for mortgage loans are 15% less compared to the same time last year, according to the Mortgage Bankers Association.

Several factors pushed interest rates higher this winter. Strong economic data downgraded expectations of a reduction in interest rates from the Federal Reserve and sent 10-year Treasury yields (a key indicator of home loan rates) soaring. Concerns about the upcoming administration of Donald Trump will cause inflation and the increase in the government debt deficit rattled the mortgage market.

Based on the current situation, a a significant drop in mortgage interest rates before the spring season for buying homes is unlikely, according to Valerie Saunderschief executive strategist at the National Association of Mortgage Brokers.

Absent a drop in inflation or a sudden weakening of labor conditions, mortgage rates will remain close to 7% for some time, he said Keith Gumbingervice president of the mortgage site HSH.com.

What will affect mortgage rates this month?

With a lot of uncertainty in the financial markets, interest rates could see big jumps and volatility this month, especially around the January 20 inauguration of the president.

“As for whether or not we see a recalibration in the next few weeks, that depends on what the president-elect says and does when he actually takes office,” said Channel Jacobsenior economist at LendingTree. If Trump declares an economic emergency to impose tariffs or does something like declare war on Denmark, mortgage rates will rise even more, Channel said.

The week after Trump takes office, the Fed will hold its first policy meeting of the year.

Although economists believe the Fed will leave the interest rates unchanged on Jan. 29, investors will be looking for any clues as to how the outlook may have changed with the new administration. The Federal Reserve has already made three interest rate cuts since September, but with no evidence of lower inflation or a weaker labor marketit may be a while before we see further reductions.

The Fed influences the direction of overall lending rates, but does not directly control the mortgage market. Investors are interested in the Fed’s outlook for interest rate adjustments because it affects their trading strategy and risk assessment. That’s why market forces often move in anticipation of the Fed’s policy moves, relying on economic data and forecasts to price their expectations in the bond market.

“Since the rise in bond yields is driven by anticipation of future events, if the narrative changes, bond yields could change,” said Kara Ngsenior economist at Zillow.

Mortgage rates may see more volatility in 2025

Apart from the typical daily fluctuations, mortgage rates expected to remain above 6.5% for the next few months. If inflation continues to cool and the Fed manages to make two 0.25% cuts, mortgage rates could inch down closer to 6.25% later in the year.

But the new administration, changes in the geopolitical outlook and the risk of a rebound in inflation have the power to dramatically change that forecast.

As investors react to political announcements and policy changesthere 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 prevalent,” Channel said.

While a sharp decline 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 reverse. “Drastic changes in direction are usually the result of some significant event occurring somewhere that overturns the financial markets,” Gumbinger said.

What is affecting the housing market in 2025?

Today’s unaffordable housing market result of high interest rates on mortgage loans, a a long-standing housing shortageexpensive housing 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 prices: At the beginning of 2022 mortgage rates hit historic lows of around 3%. As inflation rose and the Fed raised interest rates to tame it, mortgage rates doubled. In 2025 mortgage rates are still high, keeping millions of prospective buyers out of the housing market.

🏠 Speed ​​Lock Effect: Because the majority of homeowners are locked in mortgage rates below 5%, they are reluctant to give up their low mortgage rates and have little incentive to list their homes for sale, leaving a shortage of resale inventory.

🏠 High housing prices: Although housing demand has been limited in recent years, home prices remain high due to a lack of inventory. The median home price in the US was $429,963 in November, up 5.4% year over year, according to Redfin.

🏠 Sharp inflation: Inflation means an increase in the price of basic goods and services, reducing purchasing power. It also affects mortgage rates: when inflation is high, lenders typically raise interest rates on consumer loans to ensure a profit.

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 you determine if you qualify for a mortgage and at what interest rate. A credit rating of 740 or higher will help you qualify for a lower rate.

💰 Save for a bigger down payment. Bigger down 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 mortgage lenders. Comparing loan offers from multiple mortgage lenders can help negotiate a better price. 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 your housing costs.

💰 Consider mortgage points. You can get a lower mortgage rate by buying mortgage pointswith each point worth 1% of the total loan amount. One mortgage point equals 0.25% off your mortgage rate.

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