Brace Yourself: Mortgage Rates Surge as We Step into 2025!

It’s incredible how much can change in just a year. As we wrapped up 2023, mortgage rates took a delightful plunge, dropping nearly 150 basis points just in time for the New Year celebrations.

Fast forward to the end of 2024, and we all felt the sting as mortgage rates skyrocketed by about 100 basis points. Ouch, indeed!

What started with promising signs for 2024 now feels a bit daunting as we head into 2025.

However, despite the rollercoaster of interest rates, the 30-year fixed isn’t as different as it seems compared to last year.

In fact, rates were holding steady until they veered off course around mid-December.

The Shift in Mortgage Rate Sentiment

As of the latest data, the 30-year fixed-rate mortgage is averaging about 7.07%, according to one source, while another reports it at 6.91%. Either way, it’s the worst average we’ve seen since July, marking a rough patch for this popular loan.

Whether this indicates relief is on the horizon remains to be seen, but it’s a stark contrast to the optimism of late 2023 and early 2024.

Last year, we began to see signs that the 30-year fixed had hit its peak, with rates inching above 8% in October and then dropping to around 6.625% by the year’s end.

As we ushered in 2024, the outlook was bright, especially since the Fed hinted at a pivot in their policies.

They indicated no more rate hikes were coming, and the possibility of cuts was on the table.

Fast forward several months, and it took a while for the Fed to finally make that move.

Surprisingly, once they did cut rates, the 30-year fixed started climbing again, leaving many scratching their heads.

Today, potential homebuyers are facing mortgage rates that are nearly a full percentage point higher than just three months ago.

What’s Next for Mortgage Rates This Spring?

Looking back at early 2024, mortgage rates rebounded after a significant drop from 8% to the mid-6% range.

Perhaps this swing was too optimistic and not sustainable given the ongoing inflation struggles and economic uncertainty.

By April, the 30-year fixed had climbed back to around 7.50%, dampening what is typically a robust spring housing market.

As we continue to analyze the trends, 2024 might just be remembered as the year home sales hit a slump.

Despite the buzz about eager homebuyers rushing back, that surge never materialized. Instead, many were left waiting for better conditions.

Now we face a pivotal question: will 2025 be a game-changer? Are buyers poised to dive back into the market this year?

Much of that depends on the trajectory of mortgage rates this spring. With the dramatic rise towards the end of 2024, many believe rates are due for a correction.

Remember, the 30-year fixed was hovering around 6% in September, only to jump to 7% due to renewed inflation concerns and a surprisingly strong job market.

Historically, mortgage rates tend to decline for a bit after the Fed pivots, yet we’re still seeing rates above where they were before that shift.

How Much Longer Can Home Buyers Wait?

It’s clear that mortgage rates will play a crucial role in the housing market. But let’s not overlook another factor that could influence 2025: homebuyer patience.

Many who wanted to buy last year may have hit the brakes after an unexpected uptick in rates.

It was disheartening to see rates that seemed to be on the mend swing back up again.

For these prospective buyers, their plans have been delayed yet another year, but life continues. As time passes, folks are getting accustomed to these higher mortgage rates.

Psychology plays a role too; a rate that starts with a 6% or even 7% isn’t as frightening as it once was.

We’ve seen worse – remember those rates over 8% in late 2023?

Still, the landscape remains tough with affordability at a historic low. Rates are just one piece of the puzzle; high home prices, rising property taxes, and increasing homeowners insurance are also major hurdles.

When you look at the total housing payment (PITI), it may not add up for many eager buyers.

For the market to heat up, home sellers will need to reconsider their asking prices, or we may need some relief on mortgage rates as we approach spring.

Otherwise, we might be staring down another challenging year for the housing market, at least in terms of sales volume.

Stay informed: Explore our 2025 Mortgage Rate Predictions: What’s Next?