Soaring mortgage rates got you down? If you’re thinking about buying a home, you’re probably wondering: what will mortgage rates be doing in 2025? Experts predict a drop in 2025 but will they be right? Buckle up, because while predicting the future is no walk in the park, we can explore what the experts are saying and unpack some key factors that will likely influence mortgage rates next year.
As of May 30th, 2024, the 30-year fixed-rate mortgage (FRM) averaged 7.03%, according to the Primary Mortgage Market Survey®️. Here’s a quick snapshot of current mortgage rate trends:
- 1-Week Change: +0.09%
- 1-Year Change: +0.24%
- 4-Week Average: 7.02%
- 52-Week Average: 7.00%
- 52-Week Range: 6.60% – 7.79%
This information provides a helpful baseline as we delve into the predictions for 2025. But, factors such as inflation, economic growth, monetary policy, and global market conditions all play a role in shaping the future of mortgage rates. Let’s Lock In On the Forecasts.
Mortgage Rate Forecast: Experts Predict a Drop (Will They Be Right?)
Experts are gazing into their crystal balls and offering predictions about mortgage rates for 2025. Here’s a breakdown of what they’re saying:
A Gradual Downward Slope for Rates:
Major industry players like Fannie Mae and the Mortgage Bankers Association are forecasting a downward trend in rates throughout 2025. Their estimates range from 5.5% to 6.0% by the fourth quarter, which would be a welcome relief for potential homebuyers.
This would represent a significant decrease from the current rates hovering around 6.8%, offering a more attractive borrowing environment for those looking to lock in a mortgage.
Major industry players are also forecasting a downward trend in rates throughout 2025. Here’s a peek at what some of them are predicting:
- U.S. News: Expects the 30-year fixed mortgage rate to be in the high-5% range by the end of 2025.
- Mortgage Bankers Association (MBA): Predicts a rate of 5.9% in Q1 2025.
- CBS News: Projects rates could be 6% or below by Q1 2025.
- Wells Fargo: Forecasts a rate of 5.8% by the end of 2025.
However, it’s important to note that these predictions come with a degree of uncertainty. As a result, forecasters often advise caution and suggest that these projections are best viewed as guidelines rather than guarantees.
The Fed Factor:
The Federal Reserve plays a central role in setting interest rates, which in turn influences mortgage rates. In 2023, the Fed raised interest rates in an effort to combat inflation. If inflation remains high in 2025, the Fed may continue to raise rates, or keep them steady at a higher level.
This could limit the potential for significant decreases in mortgage rates. Conversely, if the Fed feels that inflation is under control and the economy is starting to slow down, they may decide to cut interest rates. This would likely lead to a decrease in mortgage rates as well.
So, the Fed’s actions regarding interest rates will be a major factor to watch in 2025. By following the Fed’s pronouncements and economic data releases, you can get a better sense of where interest rates are headed and how that might impact mortgage rates.
What Else Matters?
While expert forecasts are a good starting point, there’s more to the story. Here are some additional factors that could influence mortgage rates in 2025:
- The Inflation Rollercoaster: Inflation is a major concern right now. As of May 2024, Morningstar expects inflation to average 1.9% from 2024 to 2028, which is slightly below the Federal Reserve’s (Fed) 2% inflation target. This forecast suggests a potential for a “soft landing” where inflation gradually returns to normal without causing a recession. However, if inflation is higher than expected, the Fed may be forced to take more drastic measures, such as raising interest rates more aggressively, to control inflation. This could put upward pressure on mortgage rates.
- The Housing Market: If home prices continue to rise, even a slight decrease in mortgage rates might not make much of a difference in affordability for potential buyers. In fact, it could even create a situation where lower rates fuel further increases in home prices, essentially canceling out the benefit of the lower rate. This is because lower rates allow buyers to qualify for larger loans, which can drive up competition and push prices even higher. Additionally, if overall economic conditions weaken in 2025, it could lead to a decrease in buyer demand. This could help to stabilize or even cool off home prices, making them more affordable for buyers, even if mortgage rates don’t fall significantly.
The Takeaway: Be Prepared, Not Paranoid
Predicting mortgage rates is like predicting the weather – it’s not an exact science. But here’s the good news: even with some uncertainty, you can still make smart decisions about buying a home.
- Do Your Homework: Stay informed about economic trends and the Fed’s actions. The more you know, the better prepared you’ll be to make informed choices.
- Work with a Pro: A good mortgage lender will walk you through your options and help you find the best rate for your situation. Don’t hesitate to shop around and compare rates from different lenders.
- Focus on Affordability: Don’t get hung up on the absolute interest rate number. What truly matters is whether the monthly payment fits comfortably within your budget.
Remember, buying a home is a long-term investment. While getting a good interest rate is important, it shouldn’t be the sole factor driving your decision. By carefully considering your financial situation and keeping an eye on the market, you can position yourself to make a confident move when the time is right.
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