LOS ANGELES — Prospective homebuyers anticipating more favorable mortgage rates in the coming year may find their hopes dashed. Recent forecasts from multiple economists regarding the 2025 housing market suggest that mortgage rates will likely remain elevated.
Most analyses report that the average rate for a 30-year mortgage is expected to stay above 6% throughout 2025, with some estimates peaking as high as 6.8%. This outlook aligns closely with the rates observed over the past year. In September, the average rate dipped to 6.08%, marking a two-year low, whereas it peaked at 7.22% in May, according to Freddie Mac. As of this week, the average stood at 6.6%.
Mark Fleming, the chief economist at First American, stated, “Even by the end of next year it’s hard to see sub 6% mortgage rates,” with his prediction placing the 30-year mortgage rate between 6% and 6.5% for 2025.
The primary unknown factor influencing mortgage rates next year is the impact of President-elect Donald Trump’s proposed policy changes. If these initiatives lead to increased inflation and a higher national debt, mortgage rates may remain high. The fluctuations in inflation, U.S. deficits, and the overall economy often steer the U.S. 10-year Treasury yield, which lenders reference when setting mortgage rates.
Trump’s stated intentions to implement tariffs on imports, reduce tax rates, and ease regulations are seen as strategies that could stimulate economic growth. However, they could also potentially trigger inflationary pressures and escalate the federal government’s debt load.
Economists from Redfin are predicting that the average mortgage rate could reach approximately 6.8% next year, attributing this to expectations that Trump’s proposed tax cuts may widen the U.S. deficit and that his tariff policies could heighten inflation, driving up mortgage rates. However, if the economy falters or if there are reductions in plans for tariffs and tax cuts, the expected rates might drop to the low 6% range, according to their analysis.
On a brighter note, a couple of forecasts are somewhat optimistic regarding the future of mortgage rates. Fitch Ratings anticipates that the average 30-year mortgage will range from 5.8% to 6.4%, while TD Economics is predicting a decline to 5.8% by year-end.
Despite the average mortgage rate remaining below its historical standard of 7% since 1971, this may offer little reassurance to current homebuyers, especially as home prices have surged significantly over the past decade, outpacing income growth. “It’s a double whammy on affordability that a buyer from 30 years ago with a 6% rate didn’t have to endure,” noted Lisa Sturtevant, chief economist at Bright MLS.
For homeowners considering selling their properties, the 6% rates would mean stepping into a higher rate than they currently hold, as over 80% of mortgage holders have rates below 6%, according to data from Realtor.com.
Nonetheless, there are some positive developments for potential buyers on the horizon. Those who are financially prepared to purchase a home regardless of interest rates, or those who can leverage their existing home equity, may find opportunities as inventory continues to rise, along with a more moderate increase in home prices.