Are mortgage interest rates falling in 2025?
The housing market is always a dynamic space, with interest rates and mortgage trends continually fluctuating. Mortgage rates have recently declined to their lowest levels since December 2024. The average rate for a 30-year fixed mortgage decreased to 6.63%. So, as we move through 2025, many potential homebuyers are asking “Is now a good time to buy a house?”. This is a valid question, and as we look ahead, there are several reasons why now is a great time to make the move.
The current mortgage landscape
Mortgage rates have been on a steady rise over the past few years, hitting some of the highest levels in recent history. After reaching record lows in 2020 and 2021, the Federal Reserve’s actions in response to inflation have caused rates to climb to levels many homeowners haven’t seen in over a decade. Now as we make our way through the beginning of 2025, rates have started to decrease.
Will mortgage rates go down more in 2025?
While predicting mortgage rates with absolute certainty is impossible, we can look at a few key factors that influence these rates and give us an idea of what the future might hold.
Federal Reserve policies
The Federal Reserve has been working to combat inflation by raising interest rates. These moves have impacted mortgage rates, as they are closely tied to the Fed’s actions. However, with inflation showing signs of slowing, we are seeing the Fed lower its rates for 2025. This could lead to a decrease in mortgage rates, as lenders would face lower borrowing costs and pass on these savings to borrowers.
Economic conditions
If the economy slows down or enters a recession, the Federal Reserve might respond by reducing rates to stimulate growth. A weaker economy can also lead to less demand for homes, which can exert downward pressure on mortgage rates as banks try to stimulate lending.
Mortgage-backed securities
Mortgage rates are also influenced by the bond market, particularly mortgage-backed securities (MBS). When investors are more confident in the economy, MBS prices rise, leading to lower mortgage rates. A shift in investor sentiment could push rates down.
Why now is a good time to buy a house
With the current mortgage rate climate, there are several reasons why now is a good time to buy a home.
1. Home prices are stabilizing
While home prices soared during the pandemic, they have begun to level off or even drop slightly in some areas as the market cools. Many markets have experienced price corrections, and there are signs of continued stabilization. As the housing market adjusts, buyers may find opportunities for more reasonable pricing compared to the frenzy of the past few years.
2. Renting is becoming more expensive
Rent prices have been on the rise, and for many people, renting is becoming less affordable than purchasing a home. With mortgage rates slightly higher than historical averages, the cost of buying might still be comparable or even lower than renting, especially when considering tax benefits and the opportunity to build equity over time.
3. Equity growth over time
Real estate has always been a long-term investment, and history shows that even with fluctuations in interest rates, home values tend to increase over time. If you purchase now, you could still benefit from home price appreciation in the future. Equity buildup will be gradual, and over the years, it could offer significant returns, especially if rates decrease or stabilize.
4. Refinance opportunities later
One of the main concerns with buying a home right now is the relatively high mortgage rates. However, since rates have dropped and might potentially drop more, homeowners who purchase now could refinance into a lower rate later. This would allow them to reduce their monthly payments or pay off their homes more quickly, should they choose to do so. If rates end up rising and you have locked in your rate with a fixed-rate mortgage, then this won’t affect your payments.
5. Less competition in the market
Many potential homebuyers are sitting on the sidelines, waiting for rates to drop more before making a move. While this means fewer buyers are currently in the market, it also translates into less competition for the homes that are available. This could give you an edge when negotiating price or terms with sellers who are eager to close.
The bottom line
Predicting the future of mortgage rates is challenging, but the decline in rates that has already happened shows this may be the right time to step into the market. Purchasing a home now may offer benefits like more stable home prices, the ability to lock in a property before potential price increases, and the chance to build equity in an appreciating asset.
For buyers who can afford the current rates, now is a solid time to get into the market—especially if you’re planning to stay in your home long term. If rates drop, refinancing could become a viable option to lower your mortgage payments.
Ultimately, the right time to buy depends on your personal financial situation, long-term goals, and local market conditions. If you’re in a position to buy now, you may want to take advantage of the opportunities before they pass. It is important to talk with a knowledgeable loan officer to learn more about the current trends. If you want to take the next step, a pre-approval is a great start to your homebuying journey.
