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On a normal day, it is almost impossible to predict which way mortgage rates will go. Now, with so much uncertainty in the financial markets, mortgage rates could see more spikes and volatility, particularly after the January 20 presidential inauguration.
At the beginning of the month, the average rate on a 30-year fixed mortgage jumped over 7% and it’s not down yet.
Several factors have driven the rates recently. Robust economic data down expectations for Federal Reserve interest rate cutsprompting 10-year Treasury yields (a key benchmark for home loan rates) to rise. The mortgage market was also shaken by concerns that the incoming administration of Donald Trump it will raise inflation and increase the government debt deficit.
In the coming weeks, much will depend on what the president-elect says and does when he takes office, he said. Jacob Channelsenior economist at LendingTree. If Trump declares an economic emergency to impose tariffs or start a war with Denmark, for example, mortgage rates would move even higher.
“Unless the president-elect’s tone becomes much more moderate and disciplined once he takes office, expect volatility to remain prevalent,” Channel said.
Following Trump’s inauguration, the Federal Reserve is holding its first policy meeting of the year. Even economists believe that the Fed will not increase or decrease interest rates on January 29, investors should look for any signals to inform their risk assessment and business strategy, all of which could impact the direction of mortgage rates.
The volatility of mortgage rates in 2025
Based on the current situation, a significant drop in mortgage rates before spring homebuying season is unlikely, according to Valerie SaundersChief Executive Strategist at the National Association of Mortgage Brokers.
It takes a sudden economic shock, such as the onset of a recession or a spike in oil prices, to see a sharp drop in rates. “Drastic changes in direction are usually the result of a significant event emerging somewhere that upsets the financial markets,” he said. Keith Gumbingervice president of mortgage site HSH.com.
However, the geopolitical outlook, labor market and inflation data have the power to change mortgage forecasts.
For now, apart from daily fluctuations, mortgage rates it is expected to cruise around 7% for the next few months. If inflation continues to fall and the Fed is able to make two 0.25% cuts this year, experts say mortgage rates could inch down closer to 6.25% eventually.
Federal Reserve Governor Christopher Waller said Thursday he was optimistic about easing inflation, which would allow the central bank to continue on the path to lower interest rates in the first half of 2025. The central bank has made three interest rate cuts in 2024, and investors are now betting on another rate reduction in June or July.
While the Fed influences the direction of general lending rates, it is it does not directly control the mortgage market. In fact, market forces often move in anticipation of Fed policy moves, relying on economic data and projections to price their expectations in the bond market.
“Because the rise in bond yields is due to anticipation of future events, if the narrative changes, bond yields could change,” he said. Kara Ngsenior economist at Zillow.
A look at the 2025 housing market
Today unaffordable housing market results from high mortgage rates, a a long lack of housingexpensive house prices and a loss of purchasing power due to inflation.
🏠 Low housing inventory: A balanced housing market typically has five to six months of supply. Most markets today average about half that amount. According to Freddie Macwe still have a shortage of about 3.7 million houses.
🏠 High mortgage rates: By early 2022, mortgage rates have reached historic lows of around 3%. As inflation rose and the Fed raised interest rates to tame it, mortgage rates more than doubled. In 2025, mortgage rates are still high, pricing millions of potential buyers out of the housing market.
🏠 Rate blocking effect: As most owners are locked in mortgage rates below 5%, they are reluctant to give up their low mortgage rates and have little incentive to list their homes for sale, leaving a lack of resale inventory.
🏠 High house prices: Although home buying demand has been limited in recent years, home prices remain high due to a lack of inventory. The average US home price was $429,963 in November, 5.4% on an annual basis, according to Redfin.
🏠 Strong inflation: Inflation means an increase in the cost of basic goods and services, reducing purchasing power. It also affects mortgage rates: When inflation is high, lenders typically increase interest rates on consumer loans to ensure a profit.
What home buyers need to know
It’s never a good idea to rush buy a house without knowing what you can afford, so set a clear home buying budget. Here’s what experts advise before buying a house:
💰 Build your credit score. Your credit score will help determine if you qualify for a mortgage and at what interest. A credit score of 740 or higher will help you qualify for a lower rate.
💰 Save for a bigger down payment. A bigger one advance allows you to take out a smaller mortgage and get a lower interest rate from your lender. If you can afford it, a deposit of at least 20% will also eliminate the private mortgage insurance.
💰 Shop for mortgage lenders. Comparing loan offers from several mortgage lenders can help negotiate a better rate. Experts recommend getting at least two or three loan estimates from different lenders.
💰 Consider renting. Choose to rent or buy a house it’s not just comparing the monthly rent to a mortgage payment. Renting offers flexibility and lower upfront costs, but buying allows you to build wealth and have more control over your housing costs.
💰 Consider mortgage points. You can get a lower mortgage rate by buying mortgage pointswith each point costing 1% of the total amount of the loan. One mortgage point is equal to a 0.25% decrease in your mortgage rate.
