Mortgage Rate Forecast of 2025
Mortgage rates have been hovering in the mid 6s so far in 2025, keeping many potential buyers on the sideline waiting for rates to dip. While this is a slight improvement from the peak rates of late 2023, affordability challenges persist, keeping many prospective buyers on the sidelines. However, leading housing economists anticipate a gradual decline in rates through the remainder of 2025 and into 2026, potentially easing some of the pressure on the housing market.
Why Are Mortgage Rates So High?
The surge in mortgage rates can be attributed to several factors:
Inflation: Despite some moderation, inflation remains above the Federal Reserve's 2% target, delaying significant rate cuts.
Economic Recovery: A strong labor market and steady economic growth have kept demand for credit high, sustaining upward pressure on interest rates.
Government Borrowing: Increased government debt has exerted upward pressure on all interest rates, including those for mortgages.
When Will Interest Rates Go Down?
Here are some experts predictions on where rates are heading and when mortgage rates will go down:
| 2025 Forecast | 2026 Forecast | |
|---|---|---|
| Fannie Mae | 6.5% | 6.3% |
| Mortgage Bankers Assoc. | 5.9% | 5.9% |
| National Assoc. of Realtors | 6.0% | 6.0% |
Fannie Mae. Fannie Mae's March 2025 Economic and Strategic Research update anticipates a challenging year ahead for the housing market due to higher-than-expected mortgage rates, now forecasted to end the year at 6.5%. This adjustment follows recent strong jobs data and persistent inflation pressures, which may delay anticipated Federal Reserve rate cuts. Despite these conditions, an uptick in existing home sales is expected, driven by life events that necessitate moves, somewhat mitigating the impact of high interest rates on market activity. The outlook suggests a gradual recovery in housing market activity, supported by a slight increase in new home listings and ongoing high home prices.
Mortgage Bankers Association (MBA). The Mortgage Bankers Association (MBA) predicts that mortgage rates will gradually decrease throughout 2025. They forecast that the average rate for 30 year fixed rate mortgages will drop to around 5.9% by the end of 2025, and remain around that level in 2026. This prediction is based on expectations of cooling economic conditions and a slowing rate of inflation, which would prompt the Federal Reserve to lower rates later in the year.
Mortgage Rates Forecast FAQs
Buying a house when interest rates are high isn't generally ideal due to higher monthly mortgage payments. However, if real estate prices are expected to continue rising, delaying a purchase could mean paying more in the long run. Consider the following:
- Cost vs. Benefit: Calculate the long-term cost of buying now versus waiting for a potential drop in rates.
- Renting vs. Buying Calculate the costs of renting vs. buying. Sometimes renting might be more cost-effective in the short term when rates are high.
- Long-Term Perspective: Real estate typically appreciates over time, so buying at a higher interest rate might still be a worthwhile investment if you plan to stay in the home long enough.
While high interest rates may make refinancing less attractive for many homeowners, a cash out refinance to consolidate other high interest debts (like credit cards or personal loans) into a lower interest home loan can help reduce your monthly costs and simplify your finances. It's omportant to compare the costs of refinancing against the savings from lower interest rates on your other debts.
Buying a house when mortgage rates are high can be less cost-effective due to increased monthly payments and total interest costs. However, if home prices are rising, and you plan to stay in the house long-term, the investment could still be worthwhile. Consider your financial stability, compare renting versus buying costs, and think about potential home value appreciation. You could face higher home proces or miss out on your deam home if you are waiting for rates to go down.