Mortgage rates are still in flux, but buyers should expect more turbulence than usual in the coming months.
Since the start of his second term, President Donald Trump has been moving forward on some of his policies regarding immigration and trade, which many experts consider inflationary.
“Higher tariffs and restrictive immigration policies would increase costs for buyers at a time when affordability is near a four-decade low,” said Matt Walshhousing economist at Moody’s Analytics.
Average 30-year fixed mortgage rates have remained around a strong 7% for several weeks. Although Trump repeatedly claimed he would cut mortgage rates to 3% (which would indicate a serious economic crisis), the president was not setting a rate on home loans.
Even the Federal Reserve, which sets a benchmark short-term interest rate for lenders, only impacts the mortgage market indirectly. Between September and December, the central bank cut interest rates three times, but mortgage rates did not fall.
Indeed, rates are mainly driven by movement in the bond market, particularly the 10-year Treasury yield. Bond yields and interest rates rise and fall depending on how new economic data and policy changes change market speculation and risk assessment.
Currently, mortgage rates remain high due to a combination of factors: “strong” economic growth; Potentially inflationary policies under the new Trump administration; and the Fed’s less aggressive rate-cutting path in 2025. At its first policy meeting of the year on January 28-29the central bank should hold interest rates stable.
Mortgage rates will continue to fluctuate as investors speculate on what’s next. If inflation remains high or begins to rebound, mortgage rates will rise, regardless of the president’s promise to lower borrowing costs.
“On mortgage rates, we are more data dependent than ever,” said Greg SherManaging Director of NFM Lending.
Will the Fed meeting change the outlook for mortgage rates?
Given slow progress in inflation and concerns about warming, the Fed is expected to leave interest rates unchanged at its upcoming policy meetings.
“The earliest rate cut would be in March, and that assumes a convincing cut [inflation] In both reports by then,” said Matt Graham from Mortgage News Daily. For now, however, most Investors bet Another rate cut won’t come until late spring or early summer.
The Fed is likely to face pressure from the new president if additional cuts are not made. During a virtual appearance at the Davos World Economic Forum on Thursday, Trump said he demand interest rates to be lowered immediately.
“I think I know interest rates a lot better than they do, and I think I certainly know a lot better than whoever is primarily responsible for making this decision,” Trump said, likely referring to the Fed Chairman Jerome Powell spoke to reporters in the Oval Office on Thursday. “If I don’t agree, I’ll let you know.”
But there’s only so much Trump can really do when it comes to central banking. In addition to expressing his opinions, the president’s most direct power over the central bank is to nominate appointees to fill vacancies on the board of governors.
Similar to the Supreme Court stacking, the president could appoint members to the Fed board whose views on monetary policy align with his own. However, the first Trump will be able to make new appointments in early 2026.
Will mortgage rates drop in time for the spring home buying season?
Earlier last year, many economists optimistically predicted that interest rates would decline below 6% by early 2025. But since Trump’s re-election and less frequent policy easing In 2025, mortgage rate forecasts have changed upwards.
Fannie Mae It now expects average 30-year fixed mortgage rates to be above 6.5% through early 2025. Meanwhile, Moody’s Walsh predicts that mortgage rates will average just below 7%. % throughout the year.
However, next month’s economic data could still change the equation. “If economic data starts to weaken, we may have already seen peak rates for the year,” said Logan MohtashamiSenior Analyst at Housingwire.
In CNET’s 2025 mortgage forecast, Mohtashami noted that rates in the 6% range are still possible in 2025. But getting there will be difficult, especially in time for the spring home-buying season , if new economic policies refuel inflation or stimulate government debt deficits.
A look at the 2025 housing market
Today’s unaffordable housing market is the result of high mortgage rates, a long-standing housing shortage, expensive home prices, and a 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 shortage of about 3.7 million homes.
🏠 High mortgage Prices: As 2022 begins, mortgage rates have reached historic lows of around 3%. As inflation surged 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 Rate Effect: Since the majority of homeowners are locked into 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 house prices: Although demand for home purchases has been limited in recent years, home prices remain high due to a lack of inventory. The US median price of the United States was $427,179 In December, up 6.2% on an annual basis, according to Redfin.
🏠 Steep inflation: Inflation means an increase in the cost of basic goods and services, reducing purchasing power. This also impacts mortgage rates: When inflation is high, lenders typically increase interest rates on consumer loans to secure a profit.
What buyers need to know
It’s never a good idea to rush into buying a home without knowing what you can afford, so set a clear home buying budget. Here’s what experts recommend before buying a house:
💰 Create your credit score. Your credit score will help you 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. A larger 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 for mortgage lenders. Comparing loan offers from several mortgage lenders can help you negotiate a better rate. Experts recommend getting at least two to three loan estimates from different lenders.
💰 Consider renting. Choosing to rent or buy a home isn’t just comparing monthly rent to a mortgage payment. Renting offers flexibility and lower upfront costs, but buying allows you to build wealth and control more housing costs.
💰 Consider mortgage points. You can get a lower mortgage rate by purchasing mortgage points, with each point costing 1% of the total loan amount. One mortgage point is equivalent to a 0.25% reduction in your mortgage rate.
