2025 Home Buying: Will Mortgage Rates Make It the Best Year Yet?

After a rollercoaster year of fluctuating mortgage rates and relentless inflation, many potential homebuyers are left wondering: will 2025 finally bring mortgage rates down to a more wallet-friendly level?

Despite some recent declines, mortgage rates are still relatively high compared to historical standards. As of the week ending November 27, the average 30-year fixed mortgage rate stands at 6.81 percent—a modest decrease of 0.41 percent from last year.

Inflation, which plays a significant role in shaping mortgage rates, saw a slight uptick in October. While rates dipped to two-year lows in September, they rebounded as the Federal Reserve cut interest rates for the second consecutive month. Unfortunately, this didn’t do much to ease the burden on mortgage rates, which are largely influenced by a high 10-year Treasury yield.

With a resilient economy and inflation still above the Federal Reserve’s target, economists suggest that the Fed may pause or slow down interest rate cuts at its December meeting.

It’s essential to note that mortgage rates are influenced by a multitude of factors, including housing supply and demand, the strength of the job market, and even geopolitical events. These elements are constantly shifting, making it a complex landscape for homebuyers.

So, what insights do experts have regarding mortgage rates and the housing market in 2025?

Expert Insights

According to projections, homebuyers can expect a wild ride of mortgage rate fluctuations throughout 2025. An analysis indicates that the Fannie Mae Economic and Strategic Research (ESR) Group anticipates a slight dip in 30-year fixed mortgage rates, closing out the year around 6.30 percent. However, rates are expected to remain above 6 percent as we head into 2026.

The Mortgage Bankers Association (MBA) envisions rates settling between 6.40 and 6.60 percent in 2025, with a steady rate of 6.30 percent projected for 2026.

So, if you’re dreaming of significant drops in mortgage rates, you might want to temper those expectations.

Zillow urges prospective buyers to stay alert and ready to seize the moment when the right opportunity emerges.

But let’s consider the impact of even a minor rate drop on the overall cost of homeownership:

• $250,000 at 6 percent: $1,499
• $250,000 at 7 percent: $1,663
• Difference: $164

• $1 million at 6 percent: $5,996
• $1 million at 7 percent: $6,653
• Difference: $657

As illustrated, even slight changes in mortgage rates can have a substantial impact, particularly on larger loans.

But remember, mortgage rates are just one piece of the puzzle.

Home Price Predictions

Home prices have remained elevated through 2024 due to inventory challenges.

However, new and existing home inventory is on the rise, according to analysis from the National Association of Realtors (NAR). While construction could help ease price surges, the overall inventory remains low, and slight price increases are expected to continue into the next couple of years.

As of October, the median existing home price was $407,200, marking the sixteenth consecutive month of year-over-year increases. NAR forecasts the median price will rise to $410,700 in 2025—an increase of 2 percent—climbing to $420,000 in 2026.

Regardless of ongoing affordability issues, potential homebuyers can expect a competitive market.

“Anecdotal evidence suggests that buyers and sellers have moved on from waiting for lower mortgage rates, while rising job growth, a thriving stock market, and improving inventories are drawing prospects back to the negotiation table,” observed an economist in a recent statement.

The Political Landscape and Housing

In the wake of a contentious presidential election, Donald Trump has reclaimed the White House, leading to mixed opinions from experts on how this will influence the housing market moving forward.

Some analysts predict that proposed tariffs could exert inflationary pressures, potentially driving up interest rates, including mortgage rates. Additionally, there’s speculation about how Trump’s immigration policies might impact labor costs and homebuilding initiatives.

Despite the uncertainties, many in the home construction industry are feeling optimistic as the election’s outcome settles.

Recent reports indicate that builder confidence has risen, reflecting hopes that the new administration will ease regulations. Some believe that homebuyers who were hesitant to make purchases during the election season will now return to the market with renewed interest.

The Bottom Line

Although many forecasts suggest that mortgage rates will experience a slight decline in 2025, they are expected to hover above 6 percent well into the following year. Simultaneously, median home prices are projected to continue their upward trend.

The housing market may face challenges stemming from inflation, supply-and-demand fluctuations, and the Fed’s monetary policies.

If you’re banking on a dramatic drop in mortgage rates in 2025, you might find yourself waiting longer than anticipated.

Nevertheless, experts believe a robust economy, strong job growth, potential tax cuts, and a lively stock market could ultimately make housing more attainable even amidst high mortgage rates and rising prices.

For those who can find reasonably priced homes today, it may be time to take the plunge. Additionally, there’s still an opportunity for potential buyers to improve their credit and secure the best possible rates, despite the unpredictable interest rate environment.

The views expressed here are intended for informational purposes only and should not be construed as financial advice. Always consult with a financial advisor for personalized guidance.