2025 Mortgage Rate Forecast: What Another Trump Presidency Means for Rates
It’s only January and we’re already looking for clues about how the real estate market will change in 2025. With average mortgage rates hovering above 7%, home ownership remains a challenge, house price refuse to relax and Inventory shortage Keep buyers out.
President Donald Trump signed it upon taking office on January 20 Executive Order on Cost of Living Crisis Take action to “reduce housing costs and expand housing supply.”
But real estate market experts say big improvements won’t happen overnight.
“Mortgage rates are not going to fall as much as we expected and affordability remains a challenge,” he said Lisa SturtevantChief Economist of Bright MLS, a real estate agency.
Trump repeatedly claimed during the campaign that mortgage rates would Back to lows around 3% (Interest rates were more than double what they are today). However, the president is dealing with different economic issues than he did in his first term.
“There are similarities, such as trade wars and concerns about government spending,” wrote property market website founder Colin Roberston. The truth about mortgages. “But we’re also starting from a very different place. The highest mortgage rates in 25 years compared to the lowest mortgage rates when (Trump) won in 2016.”
Additionally, economists worry about other Trump policies proposed policyIncluding tax cuts, sweeping tariffs and mass deportations of undocumented immigrants could boost demand, increase deficits and cause inflation to rise again. This could prompt the Fed to delay future rate cuts, leading to Home loan interest rates remain highrather than letting them down.
Anyway, the Fed Does not set mortgage rates directly. Neither does the White House or lenders. Mortgage rates are closely tied to the 10-year Treasury note yield, and much depends on how bond market investors view future conditions.
For example, while housing economists had expected mortgage rates to fall to 6% by the end of 2024, they have gradually moved towards 7% as bond market investors priced in expectations of a tariff-induced surge in inflation.
Forecasts for 2025 show that the average 30-year fixed mortgage rate will temporarily hover around 6%. Logan MotasamHousingWire’s chief analyst expects interest rates to range from 5.75% to 7.25% for the full year.
What will Trump’s policies mean for mortgage rates?
lower mortgage rates It’s not impossible this yearbut they are not in the bag. The same reason mortgage rates spiked in 2022 could also cause mortgage rates to rise again: inflation.
Inflation is a key measure of the health of the economy and affects whether the Federal Reserve raises or lowers its benchmark interest rate. In the bond market, high inflation has dampened investor demand for longer-term bonds, causing bond prices to fall and mortgage rates to rise.
If Trump’s tariff proposals are implemented, companies could pass those costs on to consumers and raise prices, leading to higher inflation. So far, the new president has threatened to impose 25% tariffs on imports from Canada and Mexico and 10% on China, but general tariffs are still under consideration.
“While there is uncertainty about the extent of the impact of Trump’s policies on inflation, higher inflation expectations tend to lead to higher bond yields and mortgage rates,” he said. Beth Ann BovinoChief Economist, U.S. Bancorp.
The central bank is also unlikely to implement rate cuts if the new government’s policies prove to be inflationary in 2025, which could put upward pressure on mortgage rates. Additionally, Trump’s proposed tax cuts could reduce fiscal revenue and increase the national deficit, causing long-term bond yields to rise.
What could cause mortgage rates to drop in 2025?
Only significant weakening in economic conditions, including a decline in the labor market, and a decline in the 10-year Treasury yield would open the door to a rate cut.
“If unemployment rises or hiring slows significantly, borrowing costs, including mortgage rates, could fall,” Sturtevant said. The Fed typically responds to recessions by cutting interest rates, which banks and lenders then cut to provide cheaper loans. A form of long-term loan (including a mortgage) passed to a consumer.
For example, the Federal Reserve cut interest rates to near zero at the start of the pandemic, causing home loan rates to plummet. Just before Trump left office in early 2021, mortgage rates bottomed out at just under 3%.
Mohtashami said 30-year fixed mortgage rates could fall to just below 6% in 2025 if economic data weakens and the central bank cuts interest rates further. But mortgage rates are unlikely to fall further unless new economic policies cause mortgage rates to fall significantly. Government debt deficit.
How much can mortgage rates change in a year?
Mortgage rates fluctuate daily, often by just a few basis points (one basis point is equivalent to 0.01%). The mortgage market is also prone to volatility. Over the course of a year, mortgage rates may change a lot, or they may not change much at all. White House policy can certainly influence interest rate changes, but the president does not have the power to determine interest rates.
Historically, the greatest swings in mortgage rates have followed economic disasters (e.g., spikes in inflation, onset of recessions). recessionetc.), causing bond yields to rise or fall significantly over a sustained period of time.
For example, in 2022, mortgage rates rose from around 3% to over 7% in 10 months due to soaring inflation and sharp interest rate hikes by the Federal Reserve. That’s a 4% difference in less than a year. Compare to 2024: The difference between last year’s peak (7.33%) and trough (6.1%) is just over 1%.
Mortgage rates are likely to move within a similar tight range in 2025, especially if economic growth remains steady and future data doesn’t worry investors.
But Robertson said the arrival of a new presidential administration, changes in the geopolitical outlook and the possibility of a resurgence of inflation could all move mortgage rates by more than 1% in either direction.
For example, in a dire scenario where the U.S. heads toward recession and inflation is well below target, mortgage rates could reach the 4% range, according to the data Matt Graham Mortgage News Daily. “In the opposite scenario, where the economy is strong, inflation persists, and the national deficit increases, mortgage rates could approach or exceed 8 percent,” Graham said.
What other factors will affect the real estate market in 2025?
Even if average mortgage rates fell by 1% in 2025, most Americans, especially low- and middle-income households, would not be able to afford home ownership.
Since 2020, house prices have increased by more than 40%. Although house price growth has since slowed, it’s still rising 6.3% each year. Prices are expected to rise by nearly 2% in 2025, Thelma HuppChief Economist at Core Logic.
Part of the reason house prices are so high is because of a housing shortage Approximately one to four million homes. New home construction has lagged over the past few years due to rising construction costs and strict zoning regulations. When demand for homes exceeds supply, home prices rise.
This also applies to existing housing inventory. Since most homeowners are currently interested Interest rate is less than 5%they are less willing to sell because it means buying a new home at a higher price. The “rate lock-in effect” and lack of new home construction have effectively frozen the housing market.
Although experts expect the housing inventory to improve in 2025, it will take several years to recoup the losses.
Should you wait or buy a house in 2025?
If you are one of the millions of potential homeowners Waiting for interest rates to dropknow that the macroeconomic issues plaguing the housing market today are beyond your control. Only you can determine if you are financially ready to purchase a home and bear all the costs.
“I won’t be looking at mortgage rates until 2025,” he said Jeb Smitha licensed real estate agent and a member of CNET Money’s Expert Review Board. Smith recommends prioritizing things that can lower your personal mortgage rate, such as saving for a larger mortgage down payment and improve your credit score.
Instead of trying to time the housing market, Smith says to focus on factors you can actually control.
