Mortgage Rate Forecasts: Is 2025 the Right Year to Buy a Home?

December 13, 2024 TruthUSA

Following a year of volatile mortgage rates and stubborn inflation, many potential homebuyers are wondering if mortgage rates would sink to an affordable level in 2025.

But despite recent dips, mortgage rates remain historically high. The average 30-year fixed rate mortgage for the week ended Nov. 27 is 6.81 percent, slightly down 0.41 percent from the year prior, according to the latest data from Freddie Mac.

And inflation, which partially impacts mortgage rates, slightly ticked up in October as mortgage rates rose again after dipping to two-year lows in September. The Federal Reserve cut interest rates at its November policy meeting for the second time in a row, but it did little to drag down mortgage rates. This is partly attributed to a high 10-year Treasury yield.

And with a strong economy and inflation yet to reach the levels preferred by the Federal Reserve, some economists now expect the Fed to pause or significantly slow down interest rate cuts at its December meeting.

But mortgage rates are also impacted by other factors like housing supply and demand, the strength of the labor market, and geopolitical matters. These components are constantly moving in different directions.

So what do the experts say about mortgage rates and the housing market in 2025?

Expert Forecasts

Potential homebuyers can expect to see plenty of mortgage rate highs and lows through 2025, according to an analysis by Zillow.

The Fannie Mae Economic and Strategic Research (ESR) Group expects 30-year fixed mortgage rates to drop slightly in 2025, to close the year at around 6.30 percent. The ESR group projects rates to remain above 6 percent through 2026.

The Mortgage Bankers Association (MBA) projects mortgage rates to be within a range of 6.40–6.60 percent in 2025. And the organization predicts mortgage rates would remain steady at 6.30 percent in 2026.

So those then anticipating mortgage rates to take a significant dip in 2025 and beyond may find themselves rolling the dice again.

Zillow recommends that people looking to buy should be ready to move when they find the right opportunity and conditions.

But it’s also important to examine just how significant a slight drop in rates would be on the overall costs of homebuying.

Consider this: Here is how monthly mortgage payments would break down on principal and interest depending on mortgage size and mortgage rate:

$250,000 and 6 percent: $1,499
$250,000 and 7 percent: $1,663
Difference: $164

$1 million and 6 percent: $5,996
$1 million and 7 percent: $6,653
Difference: $657

As you can see, the difference between slight mortgage changes is most noteworthy on larger mortgages.

That said, homebuyers need to take more than just mortgage rates into account.

Home Price Projections

Home prices remained high through 2024 as inventory issues impacted the market.

But inventory of new and existing homes is increasing, according to an analysis by Lawrence Yun, chief economist at the National Association of Realtors (NAR).

And while home construction could eventually ease price increases, inventory remains low overall today and home prices are projected to continue rising slightly into the next two years.

The median existing home price in October was $407,200, according to NAR’s existing home sales data. That marked the sixteenth consecutive month of year-over-year price increases.

And for 2025, the median home price is expected to rise to $410,700 (up 2 percent over 2024), according to NAR’s forecast. And the organization expects median home prices in 2026 to climb to $420,000.

But despite ongoing affordability issues, homebuyers can expect a competitive market.

“Anecdotal evidence suggests that buyers and sellers have given up on waiting for lower mortgage rates, while rising job gains, a buoyant stock market, and improving inventories are luring prospects to the negotiating table,” stated José Torres, senior economist at Interactive Brokers, in an email to media outlets.

Trump and the Housing Market

Following a heated presidential election, Donald Trump reclaimed the White House. And many experts are expressing mixed reactions as to how Trump and a Republican-led Congress would shape the housing market in the coming years.

Some expect the president-elect’s proposed tariffs to add inflationary pressure, which could raise interest rates including mortgage rates, according to a forecast by Realtor.com.

There’s also speculation over how Trump’s immigration policies may affect labor costs and home-building plans.

Still, many home-construction companies remain optimistic following the election.

“This result was driven by optimism that the Trump administration will ease regulations,” Torres said. “Some builders believe that home shoppers reluctant to sign closing contracts due to apprehension about the presidential race will resume their home searches now that the election is concluded.”

The Bottom Line

Although many expert forecasts show mortgage rates inching down slightly in 2025, many experts predict mortgage rates will remain above 6 percent throughout the new year and into 2026. At the same time, median home prices are also expected to continue rising slightly.

And the housing market could remain pressured by the uncertainty of inflation, supply-and-demand dynamics, the Fed’s monetary policy and more.

So those expecting mortgage rates to plummet in 2025 may find themselves stuck on the sidelines even longer.

Still, many experts also believe that a resilient economy, a robust labor market, potential tax cuts and an energized stock market could ultimately make housing more affordable even in the face of high mortgage rates and home prices.

So those who can find affordable and reasonable homes today may want to move forward. And there’s also time for potential homebuyers to improve their credit to earn the best rates despite uncertainty in the interest rate environment.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.

Source link