Mortgage forecasts for the week of January 5 to 11, 2025

New year, new housing market? Not exactly.

c early 2025affordability remains a major challenge for prospective homebuyers, with prices and listing prices proving volatile, said Joel BernerSenior Economist at Realtor.com.

The average rate for a 30 year fixed mortgage in early 2025 nearly 7%, just above what it was last January.

“Several key factors can drive mortgage rates up or down,” he said Valerie Saunderschief executive strategist at the National Association of Mortgage Brokers. The mortgage market is heavily affected by inflation, Federal Reserve Policiesbond prices, GDP growth and employment data to name a few.

Based on current economic conditions, a a significant drop in mortgage interest rates before the spring home buying season is unlikely, according to Saunders.

Additionally, given recent strong economic data and speculation that President-elect Donald Trump tax, immigration and tariff proposals will resume inflation, the Fed is forecasting a much slower pace of rate cuts than the agency in 2025.

With so much uncertainty, the only sure thing is this mortgage rate forecasts it’s always changing. “Buyers shouldn’t worry about timing the mortgage rate market, but instead should focus on finding a home that fits their budget and making the largest possible down payment,” Berner said.

Read more: 2025 Mortgage Rate Forecast

Where will mortgage rates go 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 is able to pull off its projected two 0.25% rate cuts, mortgage rates could drop closer to 6.25% later in the year.

Today’s rates seem high compared to recent ones 2% rates since the pandemic era. But experts say a drop below 3% on a 30-year fixed mortgage is unlikely without a major 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 the mortgage site HSH.com. “Dramatic changes in direction are usually the result of some significant event occurring somewhere that overturns 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 to reduce taxes and tariffs could stimulate demand, increase deficits and lead to a rebound in inflation. Mortgage rates are highly sensitive to inflation.

“Tax cuts, tariffs and mass deportations are inflationary measures that would indirectly raise mortgage rates while directly increasing the cost of building and buying a home,” Berner said. If those policies are implemented faster than markets expect, that could lead to an equally rapid spike in mortgage rates, Berner said.

Higher inflation would also cause the Fed to delay future rate cuts. Although the Fed influences the direction of overall lending rates, it does not directly control the mortgage market.

Still, investors care about the Fed’s future outlook for interest rate adjustments because it informs their trading strategy and risk assessment. That’s why market forces often move in anticipation of the Fed’s policy moves.

Average 30-year fixed mortgage rates keep a close eye on bond yields, specifically the 10-year Treasury yield. If unemployment is expected to rise, bond yields and mortgage rates will fall. But if the result does not meet market expectations, the yield can quickly rise or fall.

Mortgage rates are also affected by geopolitical events, including military conflicts and elections. Political instability can lead to economic uncertainty, which can lead to more volatility with bond yields and mortgage rates.

Investors in the bond market will need to be convinced that the economy is cooling to turn mortgage rates around. Therefore, in the absence of a new decrease in the inflationary trend or a sudden weakening of working conditionsmortgage rates will remain near 7 percent for some time, Gumbinger said.

What is affecting the housing market in 2025?

Today’s unaffordable housing market a result of high mortgage rates, 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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