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On a normal day, it’s almost impossible to predict which way mortgage rates will go. Today, with so much uncertainty in the financial markets, mortgage payments may see more spikes and volatility, especially after the January 20 presidential inauguration.
Earlier this month, the average rate of a 30-year fixed mortgage jumped more than 7% and has not come down yet.
Several factors have boosted rates recently. Strong economic data is understated expected for the reduction of the interest rate by the Federal Reservewhich prompted 10-year Treasury yields (a key benchmark for home loan rates) to rise. The mortgage market is also troubled by concerns that the incoming administration of Donald Trump will make inflation worse and increase the government’s debt deficit.
In the coming weeks, much will depend on what the president-elect says and does when he takes office, as Jacob Channelsenior economist at LendingTree. If Trump declared an economic emergency to impose tariffs or start a war with Denmark, for example, mortgage rates would be higher.
“Unless the president-elect’s tone becomes more moderate and disciplined once he takes office, expect volatility to remain widespread,” Channel said.
Following Trump’s inauguration, the Federal Reserve will hold its first policy meeting of the year. Although economists believe the Fed does not increase or decrease interest on January 29, investors will look for any signals to inform their risk assessment and trading strategy, all of which may affect the direction of mortgage rates.
Mortgage rate volatility in 2025
Based on the current situation, a significant drop in mortgage rates before the spring homebuying season is unlikely, according to Valerie Saunderschief executive strategist of the National Association of Mortgage Brokers.
It takes a sudden economic shock, such as the onset of a recession or a spike in oil prices, to see a sharp drop in prices. “Major changes in direction are usually the result of some emerging significant event somewhere that raises the financial markets,” said Keith Gumbingervice president of mortgage site HSH.com.
However, the geopolitical outlook, the job market and inflation data have the power to change mortgage forecasts.
Currently, apart from daily fluctuations, mortgage payments expected to cruise around 7% for the next few months. If inflation continues to cool and the Fed is able to make two 0.25% cuts this year, experts say mortgage rates could inch closer to 6.25% eventually.
Federal Reserve Governor Christopher Waller said Thursday that he is optimistic about easing inflation, which will allow the central bank will continue on the path of lowering interest rates in the first half of 2025. The central bank made three interest rate cuts in 2024, and investors are now betting on another rate cut in June or July.
While the Fed influences the direction of the general borrowing rate, it does not directly control the mortgage market. In fact, market forces often operate in anticipation of Fed policy moves, relying on economic data and projections to price their expectations in the bond market.
“Since the rise in bond yields is due to the anticipation of future events, if the narrative changes, bond yields may shift,” he said. Kara Ngsenior economist at Zillow.
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 was then $429,963 in November, rose 5.4% 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.
