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Mortgage rates are constantly changing, but buyers should expect that more turbulence than usual in the next few months.
Since the beginning of his second term, President Donald Trump has continued some of his policies on immigration and tradewhich many experts see as inflationary.
“Higher tariffs and stricter immigration policies will increase costs for home buyers at a time when affordability is near a four-decade low,” he said. Matt Walshhousing economist at Moody’s Analytics.
There are typically 30-year fixed mortgage rates remains at a steep 7% within a few weeks. While Trump has repeatedly claimed that he will lower the mortgage rate to 3% (which would indicate a severe economic crisis), the president does not set rates on home loans.
Even the Federal Reserve, which sets a short-term benchmark interest rate for lenders, only indirectly affecting the mortgage market. Between September and December, the central bank cut interest rates three times, but loans rates did not fall.
That’s because rates are primarily driven by the movement of the bond market, particularly the 10-year Treasury yield. Bond yields and interest rates go up and down depending on how new economic data and policy changes shift market speculation and risk assessment.
Currently, mortgage payments remains high due to a combination of factors: “robust” economic growth; possible inflationary policies under the new Trump administration; and the Fed’s less aggressive rate cut approach in 2025. At the first policy meeting of the year in January 28-29the central bank is expected to hold interest rates steady.
Mortgage rates will continue to fluctuate as investors speculate about 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’re more data reliant than ever,” he said Greg Shermanaging director of NFM Lending.
Will the Fed meeting change the outlook for mortgage rates?
Due to slow growth in inflation and concerns about its warming, the Fed is expected to leave interest rates unchanged in the next few policy meetings.
“The earliest possible rate cut in March, and that claims a compelling drop in (inflation) in two reports between now and then,” said. Matt Graham in Mortgage News Daily. For now, though, 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 further cuts are not made. During a virtual appearance at the Davos World Economic Forum on Thursday, Trump said he would ask the interest to be lowered immediately.
“I think I know interest rates better than they do, and I think I know better than somebody who is primarily in charge of making that decision,” Trump said. , likely referring to Fed Chair Jerome Powell, to reporters in the Oval Office on Thursday. “If I disagree, I will make it known.”
But there is Trump can only do so much part of the central bank. Besides expressing his opinions, the central bank president’s most direct power is to name appointees to fill vacancies on the Board of Governors.
As with Supreme Court stacking, the president can appoint members to the Fed board whose views on monetary policy align with his own. However, the earliest Trump can make any new appointments is in early 2026.
Will mortgage rates drop during the spring home buying season?
Earlier last year, many economists optimistically predicted that interest rates would drop below 6% in early 2025. But since Trump’s reelection and the Fed’s declaration of less frequent easing in the policy of 2025, the forecast for mortgage rates has moved upwards.
Fannie Mae now looking forward to the average 30 year fixed mortgage rates which will hold above 6.5% until early 2025. Meanwhile, Moody’s Walsh predicts that mortgage rates will generally be below 7% throughout the year.
However, next month’s economic data will always change the equation. “If the economic data starts to weaken, we may have already seen the peak rates for the year,” he said Logan Mohtashamilead analyst at HousingWire.
At CNET’s 2025 mortgage forecastMohtashami noted that rates in the low-6% range are still possible in 2025. But it will be difficult to achieve this, especially in time for the spring homebuying season, if the new economic policies recharge inflation or increase in the government’s debt deficit.
A look at the 2025 housing market
TODAY unaffordable housing market result from high mortgage rates, a chronic homelessnessexpensive house prices and loss of purchasing power due to inflation.
🏠 Low home inventory: A balanced housing market usually has a five to six month supply. Most markets are now averaging half that amount. According to Freddie Macwe still have a shortfall of about 3.7 million houses.
🏠 Increased debt rates: In early 2022, mortgage rates hit historic lows of nearly 3%. As inflation soared and the Fed raised interest rates to quell it, mortgage rates more than doubled. In 2025, mortgage rates will still be high, pricing millions of prospective buyers out of the housing market.
🏠 Rate-lock effect: Because most homeowners locked in mortgage payments below 5%, they are reluctant to give their low mortgage rates and have little incentive to list their homes for sale, leaving a lack of resale inventory.
🏠 High house prices: Although home buying demand has been limited in recent years, home prices remain high due to a lack of inventory. The median home price in the US is $427,179 in December, rose 6.2% on an annual basis, according to Redfin.
🏠 Strong 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 often raise interest rates on consumer loans to secure income.
What home buyers need to know
It’s never a good idea to rush buy a house without knowing what you can afford, so create a clear home buying budget. Here’s what experts recommend before buying a home:
💰 Build your credit score. Your credit score helps determine whether you qualify for a loan and at what interest rate. A credit score of 740 or more can help you qualify for a lower rate.
💰 Save for a bigger down payment. A bigger one down payment allows you to get 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.
💰 Shopping for creditors. Comparing loan offers from several lenders can help you negotiate a better rate. Experts recommend getting at least two to three loan estimates from different lenders.
💰 Consider renting. Choice of rent or buy a home not just comparing monthly rent to mortgage payments. Renting offers flexibility and lower upfront costs, but buying allows you to build wealth and have more control over your housing costs.
💰 Consider the loan 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 a 0.25% reduction in your mortgage rate.
