If you work in the real estate industry, you know that high mortgage rates have been challenging for the industry for the past few years. Since rates began rising in early 2022, the impact on home sales and mortgage originations has been significant, with rates hovering around 7% and no relief in sight. This prolonged period of high rates has left many industry professionals wondering: will 2025 bring any relief?
In this post, we’ll break down mortgage rate expectations for 2025 based on insights from leading experts, offering a clearer outlook on what may lie ahead.
Understanding Fed Rate Cuts
Heading into September, mortgage rates dropped in anticipation of a planned Fed rate cut. On September 18th, the Fed reduced rates by 50 bps, briefly lowering the average 30-year mortgage rate to 6.08% by late September. However, rates quickly rebounded, climbing to 6.75% by November 1st and surpassing 7% by mid-January. So what gives?
CBS News explains, “Mortgage rates are based on several factors beyond the Fed's benchmark rate, including the strength of the U.S. economy and changes in the yield for the U.S. 10-year Treasury bond.” NAR Chief Economist Lawrence Yun also warned in a LinkedIn post, “Mortgage rates will not go down if the federal deficit continues to expand and if inflation perks up again.”
Despite additional Fed rate cuts of 25 bps in November and December, the central bank has signaled fewer rate cuts in 2025 due to persistent inflation and a robust economy.
What the Experts Predicted vs What They’re Saying Now
In early and mid-2024, economic and real estate experts were making more hawkish predictions that 2025 would be the year we would finally get mortgage rate relief. But after watching 2024 mortgage rates play out, predictions have been revised and are more reserved.
Now, the consensus among experts is that mortgage rates are likely to settle between 6-6.5% in 2025—a disappointment for those hoping to return to 5% rates. The chart below from Keeping Current Matters consolidates quarterly predictions from Fannie Mae, the Mortgage Bankers Association, and Wells Fargo.
Lawrence Yun, Chief Economist at the National Association of Realtors, laid out his predictions, stating:
"Are we going to go back to 4%? Per my forecast, unfortunately, we will not. It’s more likely that we’ll go back to 6%. That will be the new normal, bouncing around 5.5%-6.5%.”
While many hoped for a return to lower rates, the reality is that a stabilizing 6% mortgage rate may become the new normal. Even so, life goes on—economic changes, job relocations, and life events will inevitably lead some homeowners to buy or sell. For those navigating these transitions, the Handshake referral network offers a valuable resource to stay connected with top agents in cities where home prices may be more affordable.
Stay tuned for our next article, where we’ll explore what’s ahead for housing prices, affordability, and the potential impact of the next presidential administration on the market.
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