The dream of dramatically lower mortgage rates in 2025 appears to be just that — a dream.
Despite widespread hopes and initial forecasts that average 30-year fixed rates would come back down to Earth and near the 5% mark, industry experts now say rates are more likely to stubbornly stay put near the mid-6% range for the rest of this year and into 2026.
The latest core inflation reading rose to 2.7% in June from 2.4% in May, helping reinforce the reality that the housing market is stuck in a higher-for-longer rate environment. Consumer prices rose in June as the Trump administration’s tariffs and unpredictable trade wars worked through the U.S. economy.
Add geopolitical uncertainty and uneven homebuyer demand into the mix, and it’s a recipe for fewer home sales than what we usually see in the summer home-selling season.
For homebuyers who’ve been waiting for their time to pounce, higher rates make it that much harder to come off the sidelines, even as home prices soften in many parts of the country.
Mortgage rates to stay higher for longer
The Mortgage Bankers Association’s (MBA) June forecast called for the average 30-year fixed mortgage rate to end 2025 at about 6.7% and fall incrementally further to 6.4% by the end of 2026. That sharply contrasts earlier data from the trade group’s annual meeting last fall, when it forecasted rates to end 2025 at 5.9% and stay there for the next two years.
“Given the recent volatile developments in the Middle East, the lingering uncertainty regarding tariffs and signs of more cautious spending by households and businesses, we have lowered our forecasts for the remainder of 2025 as well as marking down our expectations for 2026 and 2027,” MBA chief economist Mike Fratantoni and deputy chief economist Joel Kan said in their latest forecast commentary. “Elevated interest rate volatility has kept spreads wider, notably for mortgage-Treasury spreads.”
Meanwhile, the National Association of Realtors (NAR) also downgraded its mortgage rate forecast for 2025, expecting rates to end the year at 6.7% and fall further to 6% in 2026.
If the 30-year fixed rate falls to 6%, 5.5 million more households — including 1.6 million renters — could afford the median U.S. home, NAR research shows. Plus, 10% (or 550,000) of those additional households would likely buy a home in the next 12 to 18 months, according to the trade group.
Other housing analysts and economists say mortgage rates show few signs of trending down thanks to inflation, tariffs, and an uncertain jobs picture.
“The crystal ball has gotten a lot hazier,” said Odeta Kushi, deputy chief economist with First American Financial Corporation. “It really is a matter of getting more clarity on the impact of tariffs on inflation and where the labor market goes in the second half of the year. But I don’t expect mortgage rates to move too much lower.”
Kushi said the Fed’s dual mandates — price stability and maximum employment — are competing with each other somewhat. The labor market is “almost frozen,” she added, pointing to data showing “low hiring, low firing” with “some risks to the downside.”
While consumers wait on pins and needles for a Federal Reserve rate cut, those movements won’t directly correlate with a drop in mortgage rates (if any) like some might hope.
“If you think back to last September when the Fed started cutting rates, everyone thought mortgage rates would fall,” said Zillow senior economist Kara Ng. “Instead, they increased. Buyers who had an opportunity to buy around then and decided to wait for mortgage rates to come down are probably kicking themselves right now.”
Andy Walden, who leads mortgage and housing market research for Intercontinental Exchange, said the firm’s data shows that traders are pricing in a 25-basis-point improvement in mortgage rates for the rest of the year, but that still leaves 30-year rates stuck above 6.5%.
“If that rate dynamic plays out, sellers may become as much of a focal point as buyers in the back half of 2025, as they navigate more competing listings and easing prices, especially in the South and West,” Walden said.
Buyers face ‘a great rebalancing’
In the immediate aftermath of the COVID-19 pandemic, mortgage rates approached 2% and the market saw double-digit home-price growth with bidding wars left and right, Kushi recalled.
Millions of homeowners also rushed to refinance their existing loans at the rock-bottom rates, creating what experts have dubbed the mortgage rate “lock-in effect.” That’s only now showing signs of easing.
“Now, we’re sort of on the other side of that with an increase in active inventory, which in some cases means that these homes are just sitting on the market for a long time, and it’s necessitating price cuts,” Kushi said, adding that this helps hesitant buyers in search of affordable homes. “It is sort of a great rebalancing.”
Ng conceded that the housing market has become more buyer-friendly today than it has been in recent years. Zillow research found that more than a quarter (26.6%) of homes on the market had a price cut in June — a record for the usual busy summer home-selling season since Zillow began tracking this data, Ng said.
“Affordability is still a challenge, but buyers are gaining negotiating power, especially in places like Florida and Texas, where new construction stepped up to meet demand,” she said.
Today, a household needs to earn $106,500 to comfortably afford the mortgage payment on a typical home, Zillow research found. That’s well above the $81,000 median income a typical U.S. household earns each year. But in 2020, a household earning $59,000 annually could comfortably afford the monthly mortgage on a typical home, which was below the U.S. median income of $66,000, according to Zillow.
When should buyers make their move?
Much like predicting the weather, forecasting mortgage rates is a tough gamble. That’s why experts don’t recommend buyers hinge their home-buying decision based solely on rate movements.
“Affordability may improve a little at the end of the year, if prices and mortgage rates dip a little like we expect. But of course, these dips we’re predicting aren’t drastic,” Ng said. “It doesn’t make sense for a buyer to try to time the market. There’s just too much unknown to predict where prices and especially rates will go with any confidence.”
While the Fed’s actions indirectly impact mortgage-rate movements, the real mover and shaker of the 30-year fixed rate is Treasury yields, particularly the 10-year Treasury yield. When the 10-year Treasury yield increases, mortgage rates tend to follow suit because lenders price their loans accordingly to provide value to the investors who back the loans they offer to consumers.
“Interest rates are inherently forward-looking, meaning expectations about the future economy are already incorporated into current rates,” Ng said.
“Surprises are the biggest mover of rates, whether that’s a CPI report that shows inflation is hotter or cooler than expected, or geopolitical developments. This makes predicting rate movements challenging,” Ng said.