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- Analysts initially thought mortgage rates would drop below 6% in 2025. Now, that’s looking less likely.
- Investors are pricing in expectations of higher inflation under the Trump administration, which has pushed mortgage rates up.
- Rates may drop to the low 6% range by the end of next year. But it depends on where they economy goes.
Mortgage rates are supposed to fall next year, but they might not drop enough to substantially improve affordability for home shoppers. First-time homebuyers, in particular, may have trouble finding a home and monthly payment that fits their budgets.
After the November presidential election, many analysts began updating their mortgage rate forecasts to reflect higher rate expectations in 2025. The good news is that mortgage rates are still expected to go down next year, but they might not fall as much as initially anticipated.
Revised 2025 mortgage rate forecast
Many analysts were initially predicting that 30-year mortgage rates would fall below 6% in 2025. But recently they’ve been revising these forecasts higher.
In its mid-year forecast update, which was released in August, Realtor.com predicted that rates would fall to 6.30% by the end of this year. But according to its 2025 housing forecast, released earlier this month, it now expects rates to end the year around 6.70% and fall to an average of 6.30% in 2025.
“If we had issued our 2025 forecast a couple months ago, we probably would’ve had mortgage rates in the high fives at the end of 2025,” says Danielle Hale, chief economist at Realtor.com.
Other forecasters have made similar revisions. Fannie Mae’s November housing forecast has rates falling to 6.30% by the end of 2025. But the month before, it predicted rates would reach 5.60% next year. The Mortgage Bankers Association also made similar updates to its latest forecast.
Why rate forecasts shifted
Mortgage rate forecasts change frequently. Rates respond to changes in the larger economic outlook, which is impacted by everything going on in the world.
The election played a big part in the recent shifting of expectations around mortgage rates.
“It seems that the election results shifted investors’ expectations and people were now expecting stronger economic growth or potentially higher inflation or some combination of those two factors, which is why we saw a big reset in mortgage rates,” Hale says.
President-elect Donald Trump has proposed some policies that could raise inflation and add to the deficit. Bond yields rose in anticipation of this outcome as a Trump win became more likely, which in turn pushed mortgage rates higher.
However, Hale says that it’s hard to know exactly what the incoming administration’s policies will look like if and when they’re implemented, since we don’t know yet what will be prioritized or how details will change as they go through the process. Realtor.com lists “the 2025 policy agenda” as a wild card that could impact its housing forecast.
How rates could trend in 2025
In general, housing analysts and mortgage pros still expect mortgage rates to go down in 2025, potentially reaching the low 6% range by the end of next year. But for that to happen, inflation needs to remain low so the Federal Reserve can continue lowering the federal funds rate.
“Previously, the Fed was expected to continue to reduce rates in the near term, as inflation appears to be under control,” says Rob Cook, vice president at Discover Home Loans. “That said, recent increases in Treasury rates indicate that other factors — such as uncertainty over the size of the federal deficits and emerging inflationary pressures — are influencing mortgage and interest rates.”
Inflation is still slightly above the Fed’s target rate of 2%, and Hale says that this will keep mortgage rates a little higher than they might otherwise be. If inflation doesn’t come down further or starts ticking back up, we could see rates rise.
If you’re planning to buy a home in 2025, pay attention to rates and how they fluctuate from day to day. A significant change could impact how much house you can afford.
“Prospective buyers should periodically reset their budgets based on what the most current rates would mean for any loan payments they may be considering,” Cook says.
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The good news for 2025 homebuyers: Less competition, higher incomes
Even if mortgage rates don’t drop much next year, there are still some things 2025 homebuyers have to look forward to. Inventory is expected to improve, which will give buyers more homes to choose from and better leverage when negotiating a home purchase.
“I think there are going to be some positives in the sense that you’ll have more inventory, you’ll likely have a more balanced housing market that gives you more ability to negotiate with sellers, but it’s still going to have some challenges from the affordability perspective,” Hale says.
The Realtor.com team also believes that economic growth will help push incomes higher, helping to make monthly mortgage payments more affordable.
In the longer term, Hale says that mortgage rates could settle in the high 5% range. But don’t expect rates to go that low in 2025 — at least with the current outlook.