The Truth About Mortgage Rate Predictions: Nobody Knows

Mortgage rate predictions are all over the map. Some people say rates are heading higher; others insist they’ll drop. Here’s the truth: nobody knows, and history has proven it over and over again. The market is too complex and influenced by too many variables—from Fed policy to global events—to make easy predictions.

Think about it. Rates were supposed to soar after 2008, yet they dropped. During the pandemic, plenty of experts said rates couldn’t go lower—and then they did. Now, some analysts argue rates will keep climbing because of inflation and the Fed’s moves, while others believe rates have peaked and will fall as the economy slows. Both sides sound convincing, and both could end up wrong. The real issue isn’t just bad predictions; it’s relying on them.

Here’s what you should do instead: stay informed, but don’t put your faith in any single prediction. Remain focused on what’s happening now and make decisions based on the current financial situation, not someone’s guess about the future.

In the following two articles, you will see two examples of a difference in perspective. One talks about how rates will remain elevated, and another that they will drop as the year progresses. Does this sound like a repeat of what we saw in 2024?

Spoiler alert: the market’s uncertainty isn’t going away. Our job isn’t to predict the future; it’s to help clients navigate whatever happens. Rates will rise, and they’ll fall. The only guarantee is that nobody knows when.

Mortgage rates edging closer to 7%

Mortgage rates are nearing 7%, with Freddie Mac reporting an average of 6.91% last week. Rates rose above 7% in May 2024, dipped near 6% in late summer, and have climbed again since October, driven by expectations that the Federal Reserve will keep rates high to combat inflation. Concerns about the potential privatization of Fannie Mae and Freddie Mac are also contributing to higher borrowing costs. Lawrence Yun, chief economist at the National Association of Realtors, anticipates rates will stabilize in 2025 around 6% to 6.5%.

This “new normal” could prompt more existing homeowners to sell, unlocking opportunities in the housing market. However, the market remains tough for most first-time buyers, especially those without financial help from family. While wealthier young buyers can secure homes with family assistance, moderate-income and minority households often face barriers due to a lack of intergenerational wealth.

January Mortgage Update: Rates Moving Downward

Mortgage rates are expected to fluctuate throughout January, starting higher but likely ending the month lower. The uncertainty is driven by a new presidential administration and the Federal Reserve’s revised projections to cut short-term rates by only 0.5% in 2025, which surprised investors. This unexpected adjustment led to a spike in rates, but they are expected to stabilize and decrease as the month progresses. Predictions from experts, including Chen Zhao from Redfin, suggest rates will remain relatively unchanged, while Fannie Mae forecasts rates staying above 6% throughout 2025.

Higher mortgage rates mean fewer buyers, which could lead to increased housing inventory by the end of 2025. Mike Simonsen of Altos Research predicts a return to pre-pandemic levels of inventory, offering buyers more options. In 2024, the average 30-year mortgage rate was 6.68%, slightly lower than 2023’s 6.91%. While rates may not return to historic lows, the housing market’s gradual adjustments might benefit buyers over time.