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Mortgage rates are always in flux, but home buyers should expect more turbulence than usual in the coming months.
Since beginning his second term, President Donald Trump is advancing some of his policies on immigration and trade, which many experts view as inflationary.
“Higher fees and restrictive immigration policies would increase costs for homebuyers at a time when affordability is near a four-decade low,” he said. Matt Walshhousing economist at Moody’s Analytics.
Average 30-year fixed mortgage rates have remained around a steep 7% for several weeks. While Trump has repeatedly stated that he will reduce mortgage rates to 3% (which would indicate a severe economic crisis), the president does not set rates on mortgage loans.
Even the Federal Reserve, which sets a benchmark short-term interest rate for lenders, only indirectly affects the mortgage market. Between September and December, the central bank cut interest rates three times, but mortgage rates did not fall.
This is because rates are primarily driven by movement in the bond market, specifically in 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.
Right now, mortgage rates remain elevated due to a combination of factors: “strong” economic growth; potentially inflationary policies under the new Trump administration; and the Fed’s less aggressive rate reduction path in 2025. At its first policy meeting of the year in January 28-29The central bank is expected to keep interest rates stable.
Mortgage rates will continue to fluctuate as investors speculate what’s next. If inflation remains high or begins to recover, mortgage rates will rise, regardless of the president’s promise to reduce borrowing costs.
“On mortgage rates, we rely on data more than ever,” he said Greg Sherbecomes a direct Leding and NFM.
Will the Fed meeting change the outlook for mortgage rates?
Given the slow progress in inflation and concerns about IT overheating, the Fed is expected to leave interest rates unchanged at its upcoming policy meetings.
“The earliest possible rate cut would be in March, and that assumes a compelling drop in (inflation) in both reports from time to time,” he said. Matt Graham from Mortgage News daily. From now on, however, the majority Investors are betting Another rate reduction won’t come until late spring or early summer.
The Fed is likely to face pressure from the new chairman if additional cuts are not made. During a virtual appearance at the World Economic Forum in Davos on Thursday, Trump said he would Interest rates demand to decrease 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 in charge of making that decision,” Trump said, likely referring to Fed Chairman Jerome Powell to the reporters in the Oval Office on Thursday. “If I don’t agree, I’ll let it be known.”
But there’s only so much Trump can do about the central bank. Besides expressing his opinions, the president’s most direct power over the central bank is through appointing appointees to fill vacancies on the Board of Governors.
Similar to stacking the Supreme Court, the president could appoint Fed board members whose views on monetary policy align with his own. However, the first Trump will be able to make any new appointments in early 2026.
Will mortgage rates decline in time for the spring home buying season?
Early last year, many economists optimistically predicted that interest rates would decline below 6% by early 2025. But since Trump’s re-election and the Fed’s declaration of less frequent policy tapering in 2025, the forecast of mortgage rates has changed upwards.
Fannie Mae It now expects average 30-year fixed mortgage rates to remain above 6.5% through early 2025. Meanwhile, Moody’s Walsh predicts mortgage rates will average just below 7% throughout the year.
However, next month’s economic data could always change the equation. “If economic data starts to weaken, we may have already seen peak rates for the year,” he said. Logan MohtashamiPrincipal Analyst at Housingwire.
In CNET’s 2025 mortgage forecast, Mohtashami noted that rates in the low 6% range are still possible in 2025. But it will be difficult to achieve this, particularly in time for the spring home-buying season, if new policies economic recharging inflation or increasing government debt deficit.
A look at the real estate market of 2025
Today’s unaffordable housing market results from 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 around half that amount. According Freddie Macwe still have a shortage of about 3.7 million homes.
🏠 High mortgage Rates: In early 2022, mortgage rates hit record lows of around 3%. As inflation rose and the Fed raised interest rates to tame it, mortgage rates doubled. In 2025, mortgage rates remain high, locking millions of potential buyers out of the housing market.
🏠 Rate Lock Effect: Since most 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 housing prices: Although home buying demand has been limited in recent years, home prices remain high due to a lack of inventory. The median US home price was $427,179 In December, 6.2% more annually, according to Redfin.
🏠 Steep inflation: Inflation means an increase in the cost 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 Should Know
It’s never a good idea to rush into buying a home without knowing what you can afford, so set a clear home purchasing budget. Here’s what experts recommend before buying a home:
💰 Build your credit score. Your credit score will help 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 larger 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 multiple mortgage lenders can help you negotiate a better rate. Experts recommend getting at least two or three loan estimates from different lenders.
💰 Consider renting. Choosing to rent or buy a home is not just about comparing the monthly rent with 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 purchasing mortgage points, with each point costing 1% of the total loan amount. One mortgage point is equivalent to a 0.25% decrease in your mortgage rate.
