With experts forecasting a potential decline in mortgage rates throughout 2025, we could witness a resurgence in demand—but only for lenders who are ready to adapt to the shifting market. This means embracing innovation, streamlining processes, and using data-driven insights to maintain a competitive edge. While predictions suggest that mortgage rates will gradually decrease in 2025, it's important not to become complacent. The market remains volatile, influenced by factors like inflation and economic policy that could cause unexpected changes.
Below are the predictions from leading industry experts for 2025, covering interest rates, housing inventory, and the hottest real estate markets:
Mortgage rates in 2024 have stayed high for the most part. The average rate for a 30-year fixed mortgage was 6.72% in December 2024, pricing many potential buyers out of the market and keeping would-be sellers stuck in their current homes. While predictions for mortgage rates in 2025 vary, the consensus is that rates will remain elevated. Most experts forecast that the average 30-year fixed mortgage rate will stay between 5.75% and 7.25% throughout the year.
"From an affordability perspective, we think 2025 will look a lot like 2024, with mortgage rates above 6 percent, home price growth easing from recent highs but staying positive, and supply remaining below pre-pandemic levels," said Mark Palim, Fannie Mae Senior Vice President and Chief Economist. "Still, heightened mortgage rate volatility may present opportunities for would-be homebuyers to take advantage of temporary lows, and we may see stretches where housing activity is boosted by lower rates — but, on average, we expect mortgage rates to remain elevated and a hindrance to activity. While we think conditions on a national basis will remain challenging, we're seeing meaningful regional differences in market conditions, and the homebuying experience — as the adage goes — will continue to be a local one. For example, in the Sun Belt, where construction has been robust for a few years and homebuilders are targeting first-time homebuyers with some offerings, we expect to see relatively strong housing activity. By comparison, we're not expecting to see the same in the supply-constrained Northeast. And while we foresee the current affordability crunch hampering activity through our forecast horizon, we expect nominal wage growth will outpace home price growth for the first time in more than a decade in 2025, slowly but surely providing some much-needed relief to potential homebuyers."
Here are additional predictions from other trusted sources:
Fannie Mae: Forecasts a drop in 30-year mortgage rates to 6.20% by year-end, with a further dip to 6.10% in 2026.
Realtor: Predicts mortgage rates will remain slightly above 6%.
Mortgage Bankers Association (MBA): Foresees rates declining to 6.4% by the end of 2025.
CNBC: Experts suggest rates will stabilize around 6%.
Redfin: Offers a more cautious outlook, predicting rates could approach 7%.
Freddie Mac: Their December outlook anticipates mortgage rates to decline "very gradually" in 2025.
National Association of Realtors (NAR): NAR's forecast has rates ending 2024 at 6.1% and dipping to 5.8% by late 2025, with rates possibly rising again to 6.1% in 2026.
National Association of Home Builders (NAHB): Predicts an average of 6.36% for mortgage rates in 2025, with a further decrease to 5.93% in 2026.
Although these forecasts may not be as optimistic as hoped, mortgage rates remain susceptible to change. Key influencing factors include:
Inflation: In 2024, the Federal Reserve brought inflation closer to its 2% target. This progress, alongside signs of a slowing labor market, led the Fed to implement three rate cuts this year. If inflation continues to subside, further rate cuts in 2025 could lower mortgage rates in the second half of the year.
Federal Reserve Policy: While the Fed's rate cuts may bring down mortgage rates, the 2025 monetary policy will be closely tied to inflation trends. Should inflation rise again during President Trump's second term, as some economists predict, the Fed might adopt a more cautious fiscal policy.
Economic Growth: During periods of strong economic growth, yields on 10-year Treasury bonds typically rise. Since these bond yields are closely linked to mortgage rates, an increase in their yields could lead to higher mortgage rates. As a result, if the U.S. economy continues to expand in 2025, mortgage rates may remain on the higher side.
Sources: Fannie Mae, Realtor.com, Mortgage Bankers Association (MBA), CNBC, Redfin, Freddie Mac, National Association of Realtors (NAR), National Association of Home Builders (NAHB), Bloomberg News, S&P Global.
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