Weekly Mortgage Forecast: What the Fed’s Slowdown Means for You

Over the past several weeks, the average 30-year fixed mortgage rates have hovered around a significant 7%. President Donald Trump has asserted that he will reduce these rates to 3%, a level that would typically signal a profound economic downturn. However, it's important to note that the president does not have the authority to set home loan rates.

The Federal Reserve, which establishes a short-term benchmark interest rate for lenders, only indirectly influences the mortgage market. At its policy meeting on January 28-29, 2025, the Fed is anticipated to maintain interest rates at their current levels.

In the latter part of 2024, the central bank reduced interest rates three times, yet mortgage rates remained unchanged. This is because mortgage rates are primarily influenced by movements in the bond market, particularly the 10-year Treasury yield. Bond yields and interest rates fluctuate based on new economic data and policies that affect market speculation and risk assessment.

Currently, mortgage rates are elevated due to a combination of factors: robust economic growth, the new Trump administration, and the Fed's cautious approach to rate cuts in 2025.

Since commencing his second term, President Trump has been advancing policies related to immigration and trade, which many analysts view as inflationary. "Higher tariffs and restrictive immigration policies would increase costs for homebuyers at a time when affordability is near a four-decade low," said Matt Walsh, housing economist at Moody's Analytics.

Mortgage rates will continue to fluctuate as investors speculate about the future. If inflation remains high or starts to rebound, mortgage rates will increase, regardless of the president's promise to lower borrowing costs.

"On mortgage rates, we're more data dependent than ever," said Greg Sher, managing director at NFM Lending.

Will the Fed meeting change the outlook for mortgage rates?

Given slow progress on inflation and concerns about it reheating, the Fed is expected to leave interest rates unchanged at its next few policy meetings.

"The earliest possible rate cut would be in March, and that assumes a compelling drop in [inflation] in the two reports between now and then," said Matt Graham of Mortgage News Daily. As of now, though, most investors are betting another rate reduction won't come until late spring or early summer.

The Fed is likely to face pressure from the new president if additional cuts aren't made. During a virtual appearance at the Davos World Economic Forum on Thursday, Trump said he would demand interest rates to drop immediately.

"I think I know interest rates much better than they do, and I think I know it certainly much better than the one who's primarily in charge of making that decision," said Trump, likely referring to Fed Chair Jerome Powell, to reporters in the Oval Office on Thursday. "If I disagree, I will let it be known."

But there's only so much Trump can actually do with regard to the central bank. Aside from voicing his opinions, the president's most direct power over the central bank is through naming appointees to fill vacancies on the Board of Governors.

Similar to stacking the Supreme Court, the president could appoint Fed board members whose views on monetary policy align with his own. However, the earliest Trump will be able to make any new appointments will be in early 2026.

Will mortgage rates go down in time for spring homebuying season?

Mortgage rates are always in flux, but homebuyers should expect more turbulence than usual over the next few months.

Earlier last year, many economists optimistically predicted that interest rates would dip below 6% in early 2025. However, since Trump's reelection and the Fed's declaration of less frequent policy easing in 2025, the forecast for mortgage rates has shifted upward.

Fannie Mae now expects average 30-year fixed mortgage rates to hold above 6.5% until early 2025. Meanwhile, Moody's Walsh predicts mortgage rates to average just below 7% throughout the year.

Next month's economic data could always change the equation. "If the economic data starts to weaken, we may have already seen the peak rates for the year," said Logan Mohtashami, lead analyst at HousingWire.

In CNET's 2025 mortgage forecast, Mohtashami noted that rates in the low-6% range are still possible in 2025. But it will be difficult to achieve this, particularly in time for the spring homebuying season, if new economic policies recharge inflation or boost government debt deficits.

A look at the 2025 housing market

Today's unaffordable housing market results from high mortgage rates, a long-standing housing shortage, expensive home prices, and a loss of purchasing power due to inflation.

• Low housing inventory: A balanced housing market typically has five to six months of supply. Most markets today average around half that amount. According to Freddie Mac, we still have a shortage of around 3.7 million homes.

• Elevated mortgage rates: In early 2022, mortgage rates hit historic lows of around 3%. As inflation surged and the Fed hiked interest rates to tame it, mortgage rates more than doubled. In 2025, mortgage rates are still high, pricing millions of prospective buyers out of the housing market.

• Rate-lock effect: Since the majority of homeowners are locked into mortgage rates below 5%, they're reluctant to give up their low mortgage rates and have little incentive to list their homes for sale, leaving a dearth of resale inventory.

• High home prices: Although home buying demand has been limited in recent years, home prices remain high because of a lack of inventory. The median US home price was $427,179 in December, up 6.2% on an annual basis, according to Redfin.

• Steep inflation: Inflation means an increase in the cost of basic goods and services, reducing purchasing power. It also impacts mortgage rates: When inflation is high, lenders typically raise interest rates on consumer loans to ensure a profit.

What Homebuyers Should Know

It's never a good idea to rush into buying a home without knowing what you can afford, so establish a clear home-buying budget. Here's what experts recommend before purchasing a home:

• Build your credit score: Your credit score will help determine whether you qualify for a mortgage and at what interest rate. A credit score of 740 or higher will help you qualify for a lower rate.

• Save for a bigger down payment: A larger down payment allows you to take out a smaller mortgage and get a lower interest rate from your lender. If you can afford it, a down payment of at least 20% will also eliminate private mortgage insurance.

• Shop for mortgage lenders: Comparing loan offers from multiple mortgage lenders can help you negotiate a better rate. Experts recommend getting at least two to three loan estimates from different lenders.

• Consider renting: Choosing to rent or buy a home isn't just comparing monthly rent to a mortgage payment. Renting offers flexibility and lower upfront costs, but buying allows you to build wealth and have more control over your housing costs.

• Consider mortgage points: You can get a lower mortgage rate by buying mortgage points, with each point costing 1% of the total loan amount. One mortgage point equals a 0.25% decrease in your mortgage rate.

  
  

For homebuyers in 2025, staying informed and planning strategically will be key to navigating this unpredictable market.

If you're looking to make the most of your financial opportunities, now is the time to invest wisely. Partner with us to navigate the changing market and achieve your financial goals with expert guidance and tailored investment solutions. Contact us today to get started.