Mortgage Rates Held Firm in 2024
Despite efforts by the Federal Reserve to bring down borrowing costs through interest rate cuts, mortgage rates remained persistently high in 2024. For much of the year, the average rate for a 30-year fixed mortgage hovered well above 6%, dashing the hopes of many prospective homebuyers who had been waiting for a more favorable environment to enter the market.
The root of this disconnect lies in how mortgage rates are set. Unlike other forms of credit that respond directly to the Fed’s benchmark interest rate, mortgage rates are more closely linked to the yield on 10-year U.S. Treasury bonds. These yields have stayed elevated due to persistent inflation concerns and economic policy expectations following the election of President-elect Donald Trump.
Inflation and Policy Risks Keep Rates High
Investors remain wary of inflationary pressures, especially in light of the Trump administration’s proposed policies. Higher expected government spending and the possibility of increased tariffs on imported goods have raised fears of rising prices. These factors drive up Treasury yields, since bond investors demand higher returns to offset inflation risks. And as Treasury yields rise, so too do mortgage rates.
“Tariffs are inherently inflationary,” notes Doug Carey, a chartered financial analyst and founder of WealthTrace. This potential for higher inflation keeps mortgage rates from falling in tandem with the Fed’s interest rate reductions, creating a challenging environment for borrowers.
2025 Mortgage Rate Forecasts
As 2025 begins, uncertainty still looms. While the Federal Reserve is anticipated to implement additional cuts—potentially lowering its benchmark rate by 50 basis points to a range between 3.75% and 4%—experts say these cuts may not be enough to meaningfully lower mortgage rates. The disconnect between Fed policy and market-driven mortgage rates is expected to persist.
Nevertheless, most major financial institutions forecast a modest easing of mortgage rates through the year:
- Mortgage Bankers Association: Predicts rates will range from 6.4% to 6.6%
- Realtor.com: Expects year-end rates around 6.2%
- Fannie Mae: Projects an average rate of 6.4%
- Wells Fargo: Forecasts a year-end average of 6.3%
- Goldman Sachs: Believes rates will stay above 6% for all of 2025
As of late December, Mortgage News Daily reported the average 30-year fixed mortgage rate at 7.11%, underscoring how far rates still have to fall to approach these forecasts.
Looking Ahead
The mortgage landscape in 2025 will be shaped by a complex mix of economic forces, including inflation trends, fiscal policy, and global financial market movements. For would-be buyers, the message is clear: while some relief may be on the horizon, mortgage rates are unlikely to return to pandemic-era lows anytime soon. Planning, patience, and a keen eye on market signals will be essential for anyone looking to enter the housing market in the near future.