Mortgage Forecasts: What the President’s January 20th Inauguration Could Mean for Interest Rates

On a normal day, it’s almost impossible to predict where mortgage rates will go. Now, with so much uncertainty in the financial markets, mortgage rates could see more spikes and volatility, especially after the president’s inauguration on January 20.

Earlier this month, the average interest rate on a 30-year fixed mortgage jumped over 7% and is yet to come down.

A number of factors have caused rates to rise recently. Solid economic data has been downgraded expectations of a reduction in interest rates from the Federal Reservewhich caused 10-year Treasury yields (a key gauge of home loan rates) to jump. The mortgage market was also shaken by concerns that the incoming administration of Donald Trump will cause inflation and increasing the government debt deficit.

Over the next few weeks, much will depend on what the president-elect says and does when he takes office Channel Jacobsenior economist at LendingTree. If Trump declares an economic emergency to impose tariffs or go to war with Denmark, for example, mortgage rates will rise even more.

“Unless the president-elect’s tone becomes much more moderate and disciplined once he takes office, expect volatility to remain prevalent,” Channel said.

Following Trump’s inauguration, the Federal Reserve will hold its first policy meeting of the year. Although economists think the Fed won’t increase or decrease in interest rates on January 29, investors will be looking for any signals to inform their risk assessment and trading strategy, all of which could affect the direction of mortgage rates.

Mortgage Rate Volatility in 2025

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.

It would take a sudden economic shock, such as the onset of a recession or a spike in oil prices, to see interest rates drop sharply. “Drastic changes in direction are usually the result of some significant event occurring somewhere that overturns the financial markets,” said Keith Gumbingervice president of the mortgage site HSH.com.

Still, the geopolitical outlook, labor market and inflation data have the power to change mortgage forecasts.

For now, apart from daily fluctuations, mortgage rates expected to reach around 7% in the next few months. If inflation continues to cool and the Fed manages to make two 0.25% cuts this year, experts say mortgage rates could inch down closer to 6.25% after all.

Federal Reserve Governor Christopher Waller said Thursday he was optimistic about easing inflation, which would allow the central bank to continued on the path to lower rates in the first half of 2025. The central bank has made three interest rate cuts in 2024. and now investors are betting on another rate cut in June or July.

While the Fed influences the direction of general lending rates, it does not directly control the mortgage market. Indeed, 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.

A look at 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.

What home buyers need to know

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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