Mortgage Rate Forecast for 2025 Offers Hope for Home Buyers (2024)

A new forecast for mortgage rates predicted that rates could decline later in 2024 and into 2025, which could stimulate the real estate market and increase home sales.

At present, the U.S. housing market is being hampered by a combination of limited inventory and affordability challenges for home buyers. A decline in mortgage rates could improve both of those issues but in different ways.

In this article, we’ll provide home buyer tips for 2024 and 2025 to help you make a more informed decision based on what’s happened in the market and what is anticipated to happen in the coming months.

Forecast: Lower Mortgage Rates Through 2024, Into 2025

On July 19, researchers from Freddie Mac published an updated mortgage rate forecast for 2024 and 2025 for the U.S. economy and housing market.

Freddie Mac is one of the two government-sponsored enterprises (GSEs) that purchase loans from mortgage lenders in order to inject liquidity into the market. Fannie Mae is the other GSE. Freddie Mac also has a team of economists and analysts that report on housing market trends for 2025.

In their latest mortgage rate forecast, they predicted that mortgage rates would decline later in 2024, partly due to anticipated Federal Reserve policies.

To quote the July 19 Freddie Mac mortgage forecast report:

“We anticipate a rate cut towards the end of this year if the job market cools off enough to keep inflation in check. This rate cut, if it occurs, could lead to a slight easing of mortgage rates in 2024, offering a glimmer of hope for prospective buyers.”

Looking beyond that, Freddie Mac’s researchers said that they expect mortgage rates to decline even further in 2025, dropping below 6.5% on average. They believe this will further stimulate the real estate market by making homeownership more affordable for more Americans.

Clarification: These predictions pertain to the 30-year fixed-rate mortgage loan, in particular. This is the most popular type of loan among home buyers in the U.S. The loan type is one of several factors that can affect a borrower’s mortgage rate. Credit scores also play a role.

Other Key Trends and Predictions

In addition to its outlook for mortgage rates, the Freddie Mac report provided an update on housing and economic conditions and offered noteworthy predictions in other areas.

Here’s a summary of those updates and forecasts:

Mortgage Rates Prediction For 2024 and 2025

Freddie Mac anticipates that mortgage rates will ease in 2024 and fall below 6.5% in 2025, potentially triggering a wave of refinancing activity.

High mortgage rates have slowed the U.S. real estate market in 2024, resulting in fewer home sales and reduced affordability. A decline in rates like the one predicted for later this year could stimulate the market going into 2025.

During the week of July 22, 2024, the 30-year fixed-rate mortgage rate dipped to its lowest level since the middle of March 2024, and is also lower than it was in the previous week. This is a trend that experts hope continues and expects as the economy gains strength, which are good signs of a health housing market.

This data is not yet reflected in mortgage applications, as buyers continue to remain somewhat hesitant to get into the market given high rates. Perhaps they’re waiting to see if the trend continues for a longer period of time before making a home purchase.

Housing Market Outlook

Total home sales (both new and existing) are expected to remain low through the rest of 2024. High home prices and low inventory levels are the main reason. But we could see an increase in sales activity in 2025 if mortgage rates do decline.

Despite these headwinds, Freddie Mac expects home prices to continue inching upward over the coming months.

To quote their July report again: “Due to strong demand fundamentals, we expect upward pressure on home prices and forecast home prices to increase in 2024 and 2025.”

On the supply front, housing market inventory has improved in recent months but remains low from a historical standpoint. Both existing and new home inventory levels are increasing, but they remain below pre-pandemic averages.

The Broader Economy

The U.S. economy is projected to experience slower growth in 2024 and 2025 due to the impact of higher interest rates. While inflation is showing signs of cooling, it is expected to remain above the Federal Reserve’s target rate for the near future.

Overall Outlook

Freddie Mac remains cautiously optimistic about the economy. According to this forecast, they expect a gradual easing of mortgage rates and a modest uptick in the housing market in 2025. But home buying challenges remain, including high home prices and limited inventory.

What Does This Mean for Home Buyers?

A decline in mortgage rates in the latter half of 2024 and into 2025 would be good news for potential home buyers. Even a 1% decrease in rates can mean the difference between thousands of dollars over the life of a loan. But there’s no reason to remain idle in the meantime.

Here are some steps home buyers can take to prepare early:

1. Don’t wait for rates to drop.

This latest mortgage rate forecast offers a positive outlook. But it’s not a guarantee. Waiting could mean missing out on a home you love, especially in a competitive market. If you’re ready to buy, start your search now. You can always refinance later if rates significantly decline.

2. Get pre-approved by a lender.

A mortgage pre-approval shows sellers you’re a serious buyer and can help you act quickly when you find the right home. It also gives you a clear idea of your budget. For home buyers who need to rely on mortgage financing, the pre-approval is practically a necessity.

3. Start saving your money.

Buying a home involves more than just the mortgage loan. You also need to budget for closing costs, property taxes, and potential maintenance expenses. The sooner you start saving, the easier it will be to clear these hurdles.

4. Check your credit score and improve it if necessary.

Your credit score can influence the mortgage rate you receive. If it’s low, work on improving it by paying all bills on time, reducing debt, and avoiding new credit inquiries. A higher credit score could help you get a lower rate, saving you thousands of dollars over the life of the loan.

5. Research your loan options.

If high mortgage rates are a concern, explore home loan options that might help you secure a lower rate. For example, adjustable-rate mortgages (ARM) typically start off with lower rates when compared to the more popular 30-year fixed home loan.

However, keep in mind that if rates rise, so will your mortgage rate. In other words, the rate applied on the outstanding balance of your mortgage may vary throughout the life of the loan.

Disclaimer: While the Freddie Mac forecast offers a hopeful outlook, they are still just predictions. Economic conditions can change rapidly. So there’s no guarantee that mortgage rates will follow the projected path. Our mortgage rate forecast for 2025 is meant as a general guide to help you gain a sense of what’s possible down the line given previous trends and experts outlooks.

Need Financing?

If you’re looking tom take out a new mortgage, want to refinance, or have other mortgage-related needs, we can help. At Sammamish Mortgage, we’ve been servicing clients all over the Pacific Northwest since 1992, and we’re ready to help you too. Reach out to get a rate quote and get the mortgage process started today!