New year, new property market? Not exactly.

Joel Berner, senior economist at Realtor.com, said affordability will remain a challenge for potential homebuyers into early 2025, with interest rates and listing prices proving sticky.

The average interest rate on a 30-year fixed mortgage is approaching 7% as 2025 begins, slightly higher than last January.

“There are several key factors that could cause mortgage rates to rise or fall,” said Valerie Sanders, chief strategist at the National Association of Mortgage Brokers. The mortgage market is driven by inflation, Fed policy, bonds The impact of prices, GDP growth and employment data, etc.

Sanders said based on current economic conditions, mortgage rates are unlikely to drop significantly before the spring home-buying season.

In addition, the Fed expects the pace of interest rate cuts to slow significantly in 2025, given recent strong economic data and speculation that President-elect Donald Trump’s tax, immigration and tariff proposals will reignite inflation.

With so much uncertainty, the only certainty is that mortgage rate forecasts are always subject to change. “Buyers should not worry about timing the mortgage rate market but should focus on finding a home that fits their budget and putting down as much of a down payment as possible,” Berner said.

Read more: Mortgage Rate Forecast for 2025

Where will mortgage rates go in 2025?

In addition to typical day-to-day fluctuations, mortgage rates are expected to remain above 6.5% in the coming months. If inflation continues to cool and the Fed is able to implement its two expected 0.25% rate cuts, mortgage rates could edge down closer to 6.25% later this year.

Compared to the recent 2% rate during the pandemic, today’s rate seems high. But experts say 30-year fixed mortgage rates are unlikely to drop below 3% without a severe economic downturn. Since the 1970s, the average interest rate on a 30-year fixed mortgage has been around 7%.

Keith Gumbinger, vice president of mortgage website HSH.com, said only a sudden economic shock, such as a recession or a spike in oil prices, could cause mortgage rates to plummet. “A sharp change in direction is usually the result of some major event somewhere that upends financial markets.”

What will affect mortgage rates in the short term?

The biggest variable in mortgage rates is the new administration’s economic policies. Trump’s proposed tax cuts and tariffs could boost demand, increase deficits and cause inflation to surge again. Mortgage rates are highly sensitive to inflation.

“Tax cuts, tariffs and mass deportations are all inflationary measures that indirectly push up mortgage rates while directly driving up the cost of building and buying homes,” said Berner. If these policies are implemented quickly, Berner said As expected, mortgage rates could rise as quickly as expected.

Rising inflation will also prompt the Federal Reserve to postpone future interest rate cuts. Although the Fed affects the direction of overall borrowing rates, it does not directly control the mortgage market.

Still, investors are concerned about the prospect of future interest rate adjustments by the Fed because it determines their trading strategies and risk assessments. This is why market forces often change in anticipation of Fed policy actions.

Average 30-year fixed mortgage rates closely track bond yields, particularly the 10-year Treasury bond yield. If unemployment is expected to increase, bond yields and mortgage rates will fall. But if results don’t match market expectations, yields could quickly swing higher or lower.

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

Bond market investors must be convinced the economy is cooling for mortgage rates to reverse course. That’s why, absent a new slide in inflation trends or a sudden deterioration in labor conditions, mortgage rates will remain near 7% for some time, Gumbinger said.

What factors will affect the real estate market in 2025?

Today’s unaffordable housing market is caused by high mortgage rates, a chronic housing shortage, expensive home prices, and the loss of purchasing power due to inflation.

🏠 Low housing inventory: A balanced housing market typically has five to six months of supply. The average volume in most markets today is about half that number. According to Freddie Mac, we are still short of about 3.7 million housing units.

🏠 Increase your mortgage Rate: In early 2022, mortgage rates hit historic lows around 3%. Mortgage rates more than doubled as the Federal Reserve raised interest rates to curb inflation as it soared. Mortgage rates remain high through 2025, causing millions of potential buyers to exit the housing market.

🏠 Rate lock effect: With most homeowners locked into mortgage rates below 5%, they are unwilling to give up lower mortgage rates and have little incentive to list their homes, leading to a lack of resale inventory.

🏠 High housing prices: Although demand for home purchases has been limited in recent years, home prices remain high due to a lack of inventory. According to Redfin data, the median U.S. home price in November was $429,963, up 5.4% from the same period last year.

🏠 Rapid inflation: Inflation means the cost of basic goods and services increases, thereby reducing purchasing power. It also affects mortgage rates: When inflation is high, lenders often raise interest rates on consumer loans to ensure profits.

Is it better to wait or buy?

It’s never a good idea to rush into buying a home without knowing what you can afford, so create a clear home buying budget. Here’s some advice from experts before buying a home:

💰 Build your credit score. Your credit score will help determine whether you qualify for a mortgage and what the interest rate will be. A credit score of 740 or higher will help you qualify for lower interest rates.

💰 Save more down payment. A larger down payment allows you to get a smaller mortgage and get a lower interest rate from the 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 quotes from multiple mortgage lenders can help you negotiate a better rate. Experts recommend getting at least two to three loan estimates from different lenders.

💰Consider renting a house. Choosing to rent or buy is more than just comparing your monthly rent to your mortgage payment. Renting offers flexibility and lowers upfront costs, but buying allows you to build wealth and better control your housing costs.

💰 Consider mortgage points. You can get a lower mortgage interest rate by purchasing mortgage points, with each mortgage point costing 1% of the total loan amount. One mortgage point is equivalent to a 0.25% decrease in the mortgage interest rate.

More information about today’s real estate market