Mortgage Rate Outlook 2025: Gradual Normalizing Continues
Financial markets value certainty. Regardless of which party controls the White House or Congress, putting the election behind us gives markets a clearer view of the economic policy ahead. Although a certain amount of uncertainty (pun intended!) does still surround things, the prospects of a housing-friendly regulatory environment have the industry cautiously optimistic.
Mortgage rates have been bumping along in the mid-6’s with the markets reacting one way or the other to economic news of the day. The Fed, jobs, unemployment numbers, inflation, and even the impact of potential tariffs on our trading partners (or is it all posturing?).
On the economic front, the picture is mixed. Payroll job gains are solid, though concentrated narrowly in a few sectors. At the same time, unemployment is rising, now above 4%, with more households reporting long-term unemployment and the hiring rate on the decline. If you have a hard time seeing how both are possible at once, you’re not alone.
This mix of conditions makes it difficult to predict exactly where rates are headed. Our take is that as long as inflation doesn’t head in the wrong direction (upward), the Fed may continue its cautious rate-cutting plans into 2025. Don’t expect huge changes though in mortgage rates - - we’re probably going to live with rates in the 6.25% - 5.75% range during 2025. Still, that should yield a gradually improving housing market.
Housing inventory continues to struggle to catch up to demand for homes. Housing starts in October were 3.1% below September and 4.0% below starts in October 2023. Existing home sales in October, benefitting from a dip in mortgage rates that started in the Summer, increased year-over-year for the first time since July 2021, but at 3.96 million on a seasonally adjusted annual rate basis, were still historically low.
On a positive note, we’re seeing some loosening in the average mortgage rate “lock-in effect,” where homeowners with low-rate loans stay in their homes because they can’t give up that great rate. While it’s welcome news, the additional homes for sale of course still won’t accommodate our unmet housing demand, so prices should stay firm.
The rule of thumb continues to be that if you’re considering a purchase, waiting may not yield a better result. We have programs for all types of borrowers that help them take advantage of opportunities that exist in the market today – and great opportunities can be found in all types of markets. Let’s connect to discuss your goals, and we’ll put together a winning financing plan!
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