Mortgage rates have steadily increased over the past three months, a frustrating development for home buyers trying to enter the housing market.
When the Fed began cutting interest rates in September 2024, economists, markets, and consumers hoped it would pave the way for a more relaxed lending environment and bring relief to the housing market.
However, mortgage rates have proven to be very sticky despite three rounds of interest rate cuts.
🏦 🏡 Don't miss the move: SIGN UP for TheStreet's FREE daily newsletter 🏦 🏡
As mortgage rates inch toward 7%, the trajectory of the 2025 housing market has come into focus. And while consistent mortgage rate increases may not reassure consumers, most economists predict the climbing rates will be temporary.
2025 will likely bring a more optimistic outlook for buyers and sellers, but it may take a slow and steady approach. Here’s what buyers can expect from the market in the year ahead.
Shutterstock
Mortgage rates are up, but buyers may start to gain market ground over sellers
When mortgage rates began creeping up from the recent low of 6.08% in September 2024, most people believed it was momentary political and economic uncertainty driving the hike. However, the Fed cut interest rates three times at the end of last year, and mortgage rates only continue to rise.
The average 30-year mortgage rate reached 6.91% last week, marking over three months of consistent increases. Higher mortgage rates are stagnating buyer activity, as even a 1% difference can affect homeowners’ wallets.
At a 7% mortgage rate, Bankrate estimates that homeowners pay $668 per $100,000 borrowed in interest and mortgage principal. This means home buyers can expect to pay almost $2,700 a month for their house, not including homeowners insurance or property taxes.
More on homebuying:
- Housing expert reveals surprising ways to reduce your mortgage rate
- Americans buying homes may see major housing cost changes in 2025
- Dave Ramsey has a warning for Americans buying a home now
However, most experts predict mortgage rates will moderate to around 6% by the end of the year, and anticipate that an increase in houses on the market may tip the scales in buyers’ favor.
Amit Anora, Chief Investment Officer at Opendoor, an iBuyer focused on streamlining the homebuying process, believes sellers will need to recalibrate.
“While some may assume that lower mortgage rates will create an easier market for sellers, that's not necessarily the case,” he said in a statement to TheStreet. “There is more supply lingering on the market — creating stiffer competition and new challenges for sellers.”
“This trend will intensify in 2025, even as more sellers come off the sidelines. Those listing their homes will need to be strategic and proactive to attract buyers. This will likely mean investing more in getting their homes market-ready, whether through repairs, upgrades, or professional staging, as a crowded market demands extra diligence to stand out.”
Housing supply could see a mid-year bump
An indirect side effect of rising mortgage rates has been sellers becoming hesitant to list their homes, thereby giving up their competitive mortgage rates. This reluctance has only added to the market gridlock as buyers fend off competition for the limited housing options.
However, houses are beginning to spend more time listed on the market, indicating reduced demand and buyer competition — the average home sold in 70 days last month, the slowest December housing market since 2019.
Related: Dave Ramsey has a warning for Americans buying a home now
Lower competition, in addition to a boost to the housing supply, may give buyers a slight advantage this spring.
Economists at Realtor.com expect the housing supply to increase slowly at the beginning of the year but ramp up into the spring and remain elevated throughout the summer. This slight improvement coupled with modest mortgage rate reductions may be enough to get the housing market moving again.
Increased housing development and construction will likely increase the supply to improve buyer optimism and reduce housing competition. However, how long it takes for new housing starts to hit the market and for the lock-in effect to dissipate remains to be seen.
Related: Veteran fund manager issues dire S&P 500 warning for 2025
