Mortgage rates dip for the first time in 6 weeks
The 30-year fixed rate averaged just under 7% this week, according to Freddie Mac, but some economists are already revising their 2025 forecasts upward.
Key points:
- While the mortgage rate averaged 6.96% this week, it’s not expected to fall significantly in the coming weeks.
- The economic impacts of Trump’s proposed tariffs on China, Canada and Mexico, which may take effect as early as Feb. 1, could determine where rates go next.
- The real estate market remains in a seasonal winter slumber, with fewer new listings and homes staying on the market longer.
With little new economic data this week, mortgage rates eased for the first time since mid-December, falling slightly below 7%.
The average 30-year fixed-rate mortgage came in at 6.96%, according to the latest Freddie Mac survey, down from last week's average of 7.04%. The 15-year rate also dropped from 6.27% to 6.16%.
Mortgage News Daily, which uses a different set of metrics to determine average rates, has pegged the 30-year rate at a stable 7.08% for three straight days through Jan. 22.
With bond yields still elevated, there's nothing to suggest that rates will decline significantly any time soon, said Lisa Sturtevant, chief economist at Bright MLS.
"We should expect mortgage rates to be in the mid- to high-6% range in the weeks and even months ahead," Sturtevant said.
"Some prospective homebuyers and sellers are going to wait, hoping for lower rates later this year, which could mean a relatively slow spring housing market," she noted. "But a pull-back in home sales activity is not a foregone conclusion. There is a lot of pent-up demand in the market, and many consumers have adjusted their expectations."
New policies, new forecasts
Economists are keeping a close watch on administrative decisions that could impact rates and the economy as a whole.
In his first week in office, President Donald Trump proposed steep new tariffs on China, Canada and Mexico starting Feb. 1. If enacted, inflation is expected to rise, spurring the Federal Reserve to adjust its monetary policy. That, in turn, could affect mortgage rates, said Melissa Cohn, regional vice president of William Raveis Mortgage.
"What will be interesting to see is whether he'll be able to get all of his desired policies, and to what degree," Cohn said.
During an address to the World Economic Forum on Jan. 23, Trump said he would "demand that interest rates drop immediately," setting up a potential battle with the Fed over policy.
With economic uncertainty on the horizon, some mortgage rate forecasts are changing. Fannie Mae, for one, is now projecting that rates will end the year at 6.5%, up from its previous forecast of 6.2%. Sturtevant expects more adjustments to follow: "Nearly all forecasts suggest the average rate on a 30-year fixed rate mortgage will stay above 6%, and it's very likely these forecasts will be revised upward in the first quarter of 2025," she predicted earlier this month.
In conjunction with its rate revision, Fannie Mae also lowered home sales expectations from an annual rate of 5 million down to 4.89 million, near 30-year lows. The current view, said Fannie Mae Chief Economist Mark Malim, is that the 2025 housing market is shaping up to feel a lot like 2024.
A winter slumber
In the meantime, real estate activity is experiencing its typical mid-winter doldrums. Mortgage application activity was relatively flat last week, with the seasonally adjusted purchase index up just 1% over the week prior, according to the Mortgage Bankers Association.
Homes are also taking longer to sell, spending a median of 52 days on the market — the longest span in two years — according to Redfin's weekly report. New listings are down 2.9% compared to a year ago, but overall inventory continues to slowly build.
Redfin's Homebuyer Demand Index, while up slightly week-over-week, remains near its lowest level since June with extreme cold in many parts of the country and wildfires in Southern California a key factor in the slowdown.