Mortgage rates can change daily and even hourly.
Long-term housing market predictions have been clouded by economic uncertainty under the Trump administration’s trade and austerity measures. Since early spring, average mortgage rates for 30-year fixed loans have been swinging between 6.5% and 7%. Some days are especially volatile in the mortgage market, while others are steadier.
Despite concerns over a potential recession and pressure from the White House to reduce interest rates, the Federal Reserve isn’t planning to cut rates at its May 6-7 policy meeting this week.
“The Fed appears inclined to maintain its cautious, wait-and-see stance,” said Odeta Kushi, deputy chief economist at First American Financial Corporation.
Given the contentious debates over tariffs and Trump’s political posturing against Fed Chairman Jerome Powell, investors are divided over the central bank’s projected path of rate cuts in 2025. Right now, markets are anticipating anywhere between two to four rate cuts this year, depending on economic conditions.
Though the Fed’s policy changes have a ripple effect on all short-term lending rates, the central bank doesn’t directly set the rates on home loans. “Longer-term rates, such as those on fixed-rate mortgages, are shaped by broader market forces, including inflation expectations, credit risk and recession probabilities that are beyond the Fed’s control,” said Kushi.
It’s impossible to understand the direction of mortgage rates without analyzing the bond market. This week, the bond market’s response to the Fed’s policy outlook will heavily influence where mortgage rates end up.
Read more: Mortgage Rates at a Tipping Point. Why Trump’s Tariffs Have the Housing Market on Edge
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–>How could the Fed affect the mortgage market this week?
The Fed is tasked with maintaining maximum employment and containing inflation via adjustments to its benchmark interest rate. When inflation is high, the central bank typically raises interest rates to slow price growth and reduce spending by making borrowing expensive. Then, when the economy shows signs of weakness and unemployment rises, the Fed usually slashes rates to stimulate economic activity.
“Coming into the year, the Fed was prepared to cut rates if the labor market began to weaken, since it seemed like inflation risk had mostly eased,” said Alex Thomas, senior research analyst at John Burns Research and Consulting. “Now, given the potential inflationary impact of wide-reaching tariffs, the Fed will be more hesitant to cut until the labor market weakens significantly.”
Trump’s aggressive tariff agenda has created a dilemma for the Fed. On one side, tariffs act like a supply shock that makes prices go up, leading to more inflation, said Brett Ryan, senior economist at Deutsche Bank. On the other side, tariffs can slow down the economy and threaten jobs, Ryan said.
What else is impacting mortgage rates?
The big question hanging over the housing market is whether rates will rise due to tariff-induced inflation or fall due to a recession.
Typically, bad economic news tends to bring good news for mortgage rates. With a recession in 2025 looking more likely, rates could drop. The worry of a downturn can push mortgage rates down as investors often flock to safer investments like US Treasury bonds, which lowers long-term yields. However, given declining confidence in the US economy, that might not happen this time.
The most recent economic reports don’t yet reflect a surge in unemployment, but layoffs and cutbacks can take time to appear in the data. The figures economists and the Fed rely on tell us what happened in the past, whereas investors act on what they anticipate for the future, said Logan Mohtashami, lead analyst at HousingWire.
Even if a recession brings down mortgage rates, the relief might be short-lived or irrelevant for households facing job losses and financial hardship.
Buy now? Or wait?
Today’s rates may seem high compared to the 2% rates of the pandemic era. But experts say getting below 3% on a mortgage is unlikely without a severe economic downturn.
If you’re waiting for mortgage rates to come down before buying, keep in mind that the large-scale economic issues affecting the housing market are beyond your control.
“Trying to time everything perfectly is a losing proposition. Rates could go up or they could go down,” said Gregory Heym, chief economist at Brown Harris Stevens. “The question is: Do you want a home?”
If the answer is yes, experts recommend focusing on two key fundamentals:
Make a homebuying budget and stick to it: Creating a realistic homebuying budget can help you decide if you can handle the costs of homeownership, and provide you with some figures for how large your mortgage should be.
Shop around for mortgage rates: Each home loan lender offers different mortgage rates and terms. Comparing offers from multiple lenders can help you negotiate a better rate. If you can’t snag a low rate but are ready to buy, you can always refinance down the road.
Watch this: 6 Ways to Reduce Your Mortgage Interest Rate by 1% or More
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