LOS ANGELES (AP) – Home shoppers hoping for more attractive mortgage rates next year may be disappointed.
That’s the takeaway from several economists’ 2025 housing forecasts, most released over the past couple of weeks.
Most of the eight forecasts call for the average rate on a 30-year mortgage to remain above six per cent next year, with some including an upper range as high as 6.8 per cent.
That range would be largely in line with where rates have hovered this year. The average rate has gone as low as 6.08 per cent in September – a two-year low – and as high as 7.22 per cent in May, according to mortgage buyer Freddie Mac. The average rate was 6.6 per cent this week.
“Even by the end of next year it’s hard to see sub six per cent mortgage rates,” said chief economist at First American Mark Fleming which predicts the average rate on a 30-year mortgage will range between six per cent and 6.5 per cent next year.
The biggest wildcard for mortgage rates next year is whether President-elect Donald Trump’s major policy initiatives will end up driving inflation and the national debt higher, which could keep mortgage rates elevated. That’s because what happens with inflation, the United States (US) deficit and the economy can influence moves in the US 10-year Treasury yield, which lenders use as a guide to price home loans.
Trump says he wants to impose tariffs on foreign goods, lower tax rates and lighten regulations, policies that could rev up the economy, but also fuel inflation and increase US government debt.
Economists at Redfin project that the average rate on a 30-year mortgage will hover around 6.8 per cent next year, citing expectations that Trump’s proposed tax cuts would increase the US deficit and his tariffs plan could stoke inflation, ultimately pushing mortgage rates higher.
However, mortgage rates could drop to the low-six-per-cent range if the economy weakens or if plans for tariffs and tax cuts are dialled back, according to the forecast.
A couple of forecasts are more optimistic about how low the average rate on a 30-year mortgage will go in 2025. Fitch Ratings sees it ranging from 5.8 per cent to 6.4 per cent, while TD Economics predicts the average rate will drop to 5.8 per cent by the end of the
year.
The average rate is still below its historical average of seven per cent going back to 1971. But that’s little consolation to home shoppers now because over the last 10 years home prices have risen much more quickly than incomes.
“So it’s kind of having this double whammy on affordability that someone 30 years ago with a six per cent rate wasn’t having to deal with,” said chief economist at Bright MLS Lisa Sturtevant.
Rates in the six per cent range would mean most homeowners with a mortgage would have to take on a higher rate than they currently have if they elected to sell their home and finance another. More than four in five homeowners with a mortgage have an existing rate below six per cent, according to Realtor.com.
Economists see some bright spots for homebuyers next year. Those who can afford to buy regardless of where rates are, or who can bypass them altogether by tapping into home equity gains, should benefit from a continued increase in homes for sale and modest pace of home price growth.