Mortgage rates ended 2024 with a bang – but not the kind that’s good for borrowers. And for anyone in the market for a home – or a refinance – 2025 may not be much kinder.
In the week ending Dec. 26, the 30-year fixed-rate mortgage averaged 6.85%, mortgage guarantor Freddie Mac said Thursday. The popular loan product averaged 6.72% throughout the year, compared to 6.81% throughout 2023, even as the Federal Reserve cut its benchmark interest rate three times in 2024.
It’s not surprising that mortgage rates haven’t followed bank interest rates downward. As USA TODAY has previously reported, rates for home loans take their cue from the bond market, which the Fed does not directly influence.
The bigger question is what will happen in 2025.
As analysts and housing market watchers have noted repeatedly, multiple factors may keep inflation simmering in the coming months.
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The fiscal policies promised by President-elect Donald Trump are the big one. Bright MLS Chief Economist Lisa Sturtevant had this to say after the November election: “Bond yields are rising because investors expect Trump’s proposed fiscal policies to widen the federal deficit and reverse progress on inflation.”
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On Dec. 19, the day after the Fed delivered its final interest rate cut of 2024, Apollo Global Management’s Torsten Slok wrote in a note to clients, “The strong economy, combined with the potential for lower taxes, higher tariffs, and restrictions on immigration, has increased the risk that the Fed will have to hike rates in 2025. We see a 40% probability that the Fed will raise interest rates in 2025.”
That could mean a repeat of 2022, Slok added: inflation that’s too high, rising interest rates, falling stock prices.
In the housing market, 2022 wasn’t an awful year. Some 503,000 previously-owned homes were sold that year, versus 409,000 in 2023, and likely about that many this year. One big difference is the price of homes. Throughout 2022, the median price of homes sold was $392,800, while the median sale price in November 2024, the most recent data available, was $406,000. Will prices have to dip slightly to get back to a stronger pace of sales, particularly if rates remain elevated?
Analysts say no, unfortunately.
“Elevated mortgage rates will cause many homeowners to hang onto their homes − and the low rates they have locked in,” wrote Redfin Senior Economist Sheharyar Bokhari in a recent analysis. “That means there will be enough buyers competing over a relatively low number of homes to keep prices ticking up consistently.”
