The Federal Reserve’s interest rate cuts in 2024 provided some relief to some borrowers, but mortgage rates have remained stubbornly high. As of January 2, 2025, the average 30-year fixed-rate mortgage climbed to 6.91%, its highest level in nearly six months, according to Freddie Mac. Even with the Fed lowering the federal funds rate by a full percentage point over the past four months, mortgage rates have not fallen proportionally, remaining about 0.3 percentage points higher than their 6.6% average in January 2024.

This disconnect is largely due to factors beyond the Fed's control, such as economic growth, inflation concerns, and fluctuations in the 10-year Treasury bond yield, which heavily influence mortgage rates. Economists predict that meaningful relief for homebuyers is unlikely in 2025, with rates expected to remain elevated between 6% and 7%. Lawrence Yun, chief economist at the National Association of Realtors, forecasts the average 30-year fixed mortgage rate will hover around 6.5% throughout the year.

Adding to the uncertainty, President-elect Donald Trump's proposed economic policies — potentially including sweeping tariffs on foreign goods and additional tax cuts — could reignite inflation. If inflation accelerates, the Fed will almost certainly curtail rate cuts. However, some analysts suggest Trump's tariff threats may be strategic bargaining tools in trade negotiations rather than definitive actions. If inflation continues to ease, the Fed could maintain its trajectory of lowering rates in 2025. At its December meeting, the central bank projected two additional rate cuts for the year, down from its earlier expectation of four. Inflation increased over the past two months, so we are inclined to side with the Fed’s assumption that two rate cuts are prudent in 2025.

Despite economic policy uncertainty and increasing mortgage rates, home sales have increased substantially over the past two months. We attribute this rise to two main factors: much more inventory and the market’s acceptance of higher mortgage rates. Higher inventory has allowed potential buyers to more easily find the home that’s right for them with less competition, creating a better all-around buying experience. Additionally, buyers and sellers have broadly accepted that rates will be higher than they might like for some time, and waiting for rate drops isn’t worth the time anymore. There is also a potential third factor around economic sentiment; roughly half the country thinks more highly of the economy due to the incoming administration. For better or worse, vibes are important, and buying a home is often as much or more of an emotional choice as it is a financial one. 
Different regions and individual houses vary from the broad national trends, so we’ve included a Local Lowdown below to provide you with in-depth coverage for your area. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.

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