Mortgage Rate Predictions: Holiday Week Brings Higher Rates
The holidays are not a prime time for the real estate market. Fewer people buy and sell homes during the winter, leading to a drop in home loan applications.
Additionally, mortgage rates have reached their highest levels in weeks. After the Fed third interest rate cut At the December policy meeting, on average 30-year fixed rate It rebounded to about 7% from its November high.
Although the Fed affects the direction of overall borrowing rates, it Does not directly control the mortgage market. Mortgage rates are driven by investor expectations and change with the 10-year Treasury yield, and there are many factors that affect the bond market. To reverse the trend of rising mortgage rates, bond market investors must be convinced that the economy is cooling.
Until there is evidence that inflation is easing and the job market is softening, mortgage interest rate It will remain high in the short term. Fed expects pace of rate cuts to slow During 2025which may keep the average interest rate somewhat volatile, fluctuating between 5.75% on the low end and 7.25% on the high end, according to the data HousingWire’s 2025 Forecast.
Read more: 2025 Mortgage Rate Forecast
Why will mortgage rates be higher after the Fed cuts rates?
The recent surge in long-term Treasury yields and home loan rates has been largely attributed to the latest policy update from the Federal Reserve Economic Forecast Summaryoutlined expectations for just two 0.25% interest rate cuts in 2025, down from the previous four.
maintain maximum employment To control inflation, the Fed evaluates economic data to decide whether to raise or lower its benchmark short-term interest rate. Investors care about the outlook for future interest rate adjustments by the Federal Reserve because it determines their trading strategies and risk assessments.
This month, markets have weighed heavily on Federal Reserve Chairman Jerome Powell’s concerns about a resurgence of inflation and those of President-elect Donald Trump. Tax and customs advice. Powell was more conservative about future policy changes: “When the path is uncertain, you go a little slower.”
Prices in bond and stock markets quickly plummeted as a result of a “more hawkish Fed.” Matt Graham Mortgage News Daily. Hawkish monetary policy tends to be more stringent, relying on higher interest rates to control inflation.
Although the Fed pivoted to cutting interest rates in September, it worries that easing rates too quickly would only lead to inflation stalling or reversing entirely. Experts say the Fed may delay further interest rate cuts until March or even later.
Where will mortgage rates go in 2025?
Although experts optimistically predicted that interest rates would fall by nearly 6% by the end of 2024, the forecasts have already changed significantly. Fannie Mae Now expected average 30-Year Fixed Mortgage Rate It will remain above 6.5% by the beginning of 2025.
“If the Fed does only cut rates twice next year, mortgage rates will likely be very similar to what they are now,” he said. Chen ZhaoDirector of Economic Research at Redfin.
In addition to normal day-to-day fluctuations, mortgage rates will remain above 6% for some time. This seems high compared to recent times 2% rate The era of epidemic. But experts say 30-year fixed mortgage rates are unlikely to drop below 3% without a severe economic downturn. Since the 1970s, the average interest rate has been 30-year fixed mortgage It has been around 7%.
Forecasts are likely to change again in the coming months given the arrival of a new administration, changes in the geopolitical outlook and the risk of a rebound in inflation. Future interest rate changes depend on a range of factors, including:
Trump’s economic policies: Trump’s Tax Cuts and Tariff Proposals is a big variable in mortgage rates. Experts say such moves could boost demand, increase deficits and push up inflation. That could prompt the Fed to delay future rate cuts, keeping home loan rates high.
10-Year Treasury Bond Yield: Average 30-year fixed mortgage rates closely track bond yields, particularly the 10-year Treasury note. If inflation and labor data remain strong, bond yields and mortgage rates will rise. The opposite will happen if unemployment rises or inflation cools and the Fed continues to cut interest rates.
Geopolitical situation: Mortgage rates are also affected by geopolitical events, including military conflicts and elections. Political instability can lead to economic uncertainty, leading to greater volatility in bond yields and mortgage rates.
Potential curve balls: Bond investors often take action based on what they think is happening in the economy. For example, if unemployment is expected to increase, bond yields and mortgage rates will fall. But if results don’t match market expectations, yields could quickly swing higher or lower.
Others unknown: While Trump’s policies have led to expectations of rising inflation and budget deficits, there remains much uncertainty about the timing and substance of economic changes. Campaign promises rarely reflect the policies that are ultimately implemented, and investors can’t predict how far apart they will be.
What else is happening in the housing market?
Today’s unaffordable housing market The result of high mortgage rates chronic housing shortageexpensive housing prices and loss of purchasing power due to inflation.
🏠 Low housing inventory: A balanced housing market typically has five to six months of supply. The average volume in most markets today is about half that number. Although we see a surge in new construction in 2022, according to Zillowe are still short of about 4.5 million housing units.
🏠 Increase your mortgage Rate: In early 2022, mortgage rates were near historic lows around 3%. Mortgage rates roughly doubled in a year as inflation soared and the Federal Reserve began raising interest rates to curb it. Mortgage rates remain high through 2024, effectively squeezing millions of potential buyers out of the housing market. that is leading to slowdown in home saleseven during typically busy months for home buying, like spring and early summer.
🏠 Rate locking effect: Because most owners are Lock in your mortgage rate Below 6%, and some as low as 2% and 3%, they are reluctant to sell their current home because it means buying a new home with a significantly higher mortgage rate. Until mortgage rates drop below 6%, homeowners have little incentive to list their homes, leading to a dearth of resale inventory.
🏠High housing prices: Although demand for home purchases has been limited in recent years, home prices remain high due to a lack of inventory. The median home price in the United States is $434,568 Data from Redfin showed year-over-year growth of 5.1% in September.
🏠 Inflation is serious: Inflation increases the cost of basic goods and services, reducing our purchasing power. It also affects mortgage rates: When inflation is high, lenders often set consumer loan rates to compensate for the loss of purchasing power and ensure profits.
Should you wait or buy now?
Rushing is never a good idea buy a house Without knowing what you can afford, create a clear budget for your home purchase. Here’s what experts recommend before buying a home:
💰 Build your credit score. Your credit score is one of the main factors lenders consider when determining whether you qualify for a mortgage and what the interest rate will be. dedicated to credit score 740 or higher will help you qualify for lower rates.
💰 Save more down payment. bigger down payment will allow you to get a smaller mortgage and get a lower interest rate from the lender. If you can afford it, putting down at least 20% will also eliminate the need for private mortgage insurance.
💰 Shop around for a mortgage lender. Comparing loan quotes from multiple mortgage lenders can help you Negotiate a better price. Experts recommend getting at least two to three loan estimates from different lenders before making a decision.
💰 Consider the rent vs. purchase equation. choose Rent or buy a house Don’t just compare your monthly rent to your mortgage payment. Renting offers flexibility and lowers upfront costs, but buying allows you to build wealth and have more control over housing costs. The best choice depends on your financial situation, lifestyle and how long you plan to stay in a place.
💰 Consider mortgage points. One way to get a lower mortgage rate is to use mortgage points. One mortgage point is equivalent to a 0.25% decrease in the mortgage interest rate. Typically, the fee per point is 1% of the total loan amount.
