As the Federal Reserve likely holds interest rates steady, mortgage rates are expected to stay in a narrow range.
With each passing day, it seems like average 30-year mortgage rates could remain stuck near 6.8% for the rest of the year. Yet conflicting economic forces could push mortgage rates up or down in the coming months.
Housing market experts say the same thing: The direction of mortgage rates depends on the economic impact of policies by the Trump administration and the projected pace of the interest rate cuts by the Federal Reserve.
On Wednesday, the Fed plans to keep borrowing rates the same at its fourth monetary policy meeting this year. Given ongoing political and economic uncertainty, markets don’t expect any interest rate cuts until September.
“While two Fed rate cuts are still projected for 2025, they continue to get pushed back due to the global trade war,” according to Colin Robertson, founder of The Truth About Mortgage. “Ultimately, economic data related to inflation and employment is what matters to the Fed (and bond traders).”
Mortgage rates are linked to 10-year Treasury yields in the bond market, and they are also sensitive to other factors such as investor sentiment.
“Concerns remain about higher inflation and federal debt, which would drive both the bond yields and the mortgage rates higher,” said Selma Hepp, deputy chief economist for Cotality. Overall, Hepp noted that mortgage rates are unlikely to move outside the narrow range of 6.5% to 7% unless there’s an economic downturn or a spike in joblessness.
Homebuyers waiting for mortgage rates to fall for the past few years are adjusting to the “higher for longer” rate environment. Costly borrowing rates are just one stressor prospective buyers face in a housing market plagued by high home prices and low inventory.
Here are some possible scenarios affecting if mortgage rates move up or down over the next period.
Interest rate cuts could help mortgage rates fall
While the central bank does not set mortgage rates directly, its policy decisions indirectly influence consumer borrowing rates, like mortgage rates, over the long term. After inflation showed signs of slowing in late 2024, the Fed cut interest rates three times but shifted to a wait-and-see approach this year. Despite market volatility, the central bank has held rates steady, a stance it is set to uphold at its next Federal Open Market Committee meeting on June 17 to 18.
The complex economic landscape presents a challenge for the Fed, which is tasked with maximizing employment and containing inflation. The latest inflation report for May came in softer than anticipated, making the Fed more likely to resume cutting interest rates in the fall. If joblessness climbs due to a recent wave of layoffs, the central bank could cut even sooner to avert a recession, putting downward pressure on Treasury bond yields and mortgage rates.
Tariffs could keep mortgage rates elevated
“Mortgage rates appear mostly stuck until there’s more clarity on tariff impact,” Robertson said.
For bond yields (and mortgage rates) to fall, or at least stabilize, there needs to be greater clarity on geopolitical relations, the global supply chain and government debt. Trump’s tendency to flip-flop on trade policies could spotlight instability for a while.
“The impact of tariffs is uncertain, depending on their ultimate impact on inflation and economic activity,” Hepp said. “Slowing of economic activity would bring rates lower, while higher inflation would keep rates higher.” Inflation is still expected to rise as domestic companies pass expensive duties onto consumers through higher retail prices.
If inflation ends up increasing due to Trump’s sweeping tariffs, the Fed may have to delay rate cuts until 2026.
Bond yields could cause disarray in the market
Treasury yields are directly linked to mortgage rates. When bond yields rise, so do borrowing costs on home loans. Fewer interest rate cuts combined with the Trump administration’s budget bill, which is expected to significantly raise federal deficits, are likely to keep upward pressure on longer-term bond yields.
What we’re seeing now is somewhat of an anomaly. Normally, during times of economic uncertainty or turbulence in the stock market, investors flock to the safety of Treasury bonds, causing yields to drop as demand for these lower-risk assets rises.
Ongoing concerns about inflation, unemployment and government debt levels have kept Treasury yields volatile and elevated, pointing to declining investor confidence writ large in the economy.
A recession could drive mortgage rates lower
For mortgage rates to drop significantly, the overall economic picture would have to get a lot bleaker.
“Concerns about a recession, driven by rising unemployment or a decline in consumer spending and demand for loans, would drive mortgage rates down,” said Hepp. However, if cheaper mortgage rates come as a result of an economic downturn, with households facing job losses, tighter budgets and financial instability, it could also keep homebuyers locked out.
Though a recession is not a foregone conclusion, the risk remains elevated. Unemployment is on the rise, consumer sentiment has soured, and economic growth declined in the first quarter of 2025. So the prospect of a slowdown or even stagflation, an economic downturn marked by high inflation, is still in the cards for now.
What to know about the housing market now
In this unaffordable housing market, costly interest rates have contributed to keeping inventory tight, as homeowners hang onto their cheaper below 5% mortgage rates they scored just a few years ago.
While prospective buyers have multiple reasons to wait for the market to shift, homeownership offers the promise of long-term financial stability and generational wealth-building through equity.
“Despite higher rates and home prices, homebuyers are finally finding themselves in a position of greater power as inventories continue to grow and sellers are finally ready to make a move,” Hepp said.
Remember that each lender offers different mortgage rates and terms. Comparing offers from multiple lenders can help you negotiate a better deal. You can also take steps to improve your credit score or buy mortgage points to secure a lower rate. If you can’t snag a cheaper rate but are ready to buy, you can always refinance down the road.
Experts recommend making a budget and sticking to it. Creating a realistic financial plan can help you decide if you can handle the costs of homeownership and provide you with some estimates for how large your mortgage limit is.
Watch this: 6 Ways to Reduce Your Mortgage Interest Rate by 1% or More
