Interest Rates in 2025 (The Housing Market) and what to expect

  • May 1, 2025
  • Posted by: Dre B.
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2025 Interest Rates and the Housing Market: What You Need to Know

Last updated: May 1, 2025

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Current Mortgage Rate Snapshot

The housing market in 2025 continues to be shaped primarily by interest rates, with the current average 30-year fixed mortgage rate at 6.76% as of May 1, 2025, according to Freddie Mac’s weekly survey. This rate represents a decline from last year’s peak, offering some relief to potential homebuyers, though still significantly higher than the sub-3% rates seen during the pandemic era. For a historical perspective, you can view the complete mortgage rate history chart to understand today’s rates in context.

Key Interest Rate Trends in 2025

Gradual Decline Expected

According to Mark Palim, Fannie Mae Senior Vice President and Chief Economist, “We think mortgage rates will move even lower within the next quarter and ultimately close the year at approximately 6.3 percent, which could be low enough to generate some extra sales from any would-be buyers still waiting on the sidelines.”

The general consensus among economic forecasters is that the 30-year fixed rate will stay between 6.5% and 7% through most of 2025, with modest declines possible later in the year. This prediction is based on several economic factors, including Federal Reserve policy, inflation trends, and overall economic growth.

For more detailed forecasts, you can review the Mortgage Bankers Association’s predictions and Fannie Mae’s economic outlook.

Recent Rate Movement

Freddie Mac’s rate for a 30-year fixed rate loan declined for the second consecutive week, averaging 6.76% for the week ending May 1, nearly half a percentage point lower than a year ago. This continuing downward trend offers a glimmer of hope for prospective buyers who have been waiting for more favorable financing conditions.

According to Bankrate’s latest survey, the national average 30-year fixed mortgage APR is 6.85% as of May 1, 2025, with the 15-year fixed mortgage APR at 6.08%. You can compare current mortgage rates from multiple lenders to find the best option for your situation.

Impact on the Housing Market

Market Stagnation and Limited Supply

The current housing market stagnation is more closely tied to interest rates than any other factor. As one analyst noted, “The situation is not going to change until we get mortgage rates back down toward 5%, or even lower.”

Supply should be less of a support for the housing market in 2025. While single-family existing homes for sale have increased roughly 20% year-over-year, the number remains near record lows—about 20-30% below prior troughs. For current housing inventory data, check the National Association of Realtors’ existing home sales statistics.

Learn more about the U.S. housing market outlook and the factors driving today’s market conditions.

Affordability Challenges

The combination of elevated mortgage rates and higher home prices means that housing affordability remains a significant challenge for many buyers. According to residential real estate data, the median monthly mortgage payment in early 2025 was $2,793, hovering near all-time highs.

The Federal Housing Finance Agency reports that the average interest rate on existing mortgages is 4.3%—far lower than current rates available to new homebuyers. In fact, 83% of homeowners have a mortgage rate below 6%. This disparity has created a “lock-in effect,” with many homeowners reluctant to sell and forfeit their advantageous rates.

You can use a mortgage affordability calculator to determine how much home you can afford in today’s market.

Homebuyer Strategies in the Current Rate Environment

Consider Rate Buydowns

To make today’s mortgage rates more manageable, buyers should explore rate buydown options. An interest rate buydown allows buyers to pay cash upfront in exchange for a reduced interest rate on their mortgage, either permanently or temporarily (for the first one to three years). Learn more about the different types of buydowns and how they can make homeownership more affordable.

Don’t Wait for Significantly Lower Rates

“The near term, we expect mortgage rates to remain in a fairly narrow range, between 6.5 and 7%, which should support the spring housing market,” according to Mike Fratantoni, chief economist for the Mortgage Bankers Association.

Economists expect mortgage rates to hold relatively steady for the remainder of this year. Compared to historical mortgage rates, 7% isn’t considered exceptionally high—it’s on par with mortgage rates in the 1990s and considerably lower than the double-digit rates of the late 1970s and early 1980s. For the latest mortgage rate predictions, review the current mortgage rate forecast.

Explore New Construction

Buyers may find less competition in the new home construction market. While homeowners may be reluctant to sell and sacrifice their low mortgage rates, homebuilders remain eager to close deals, especially as new home inventory rises. Though typically more expensive than resale homes, builders may offer concessions like price reductions or temporary interest-rate buydowns.

Check the latest new home sales data from the U.S. Census Bureau to understand current construction trends.

Factors Influencing Future Rate Movement

Federal Reserve Policy

Fannie Mae has adjusted its mortgage rate outlook, projecting a modest decline to 6.2 percent by the end of 2025. While factors like inflation and tariffs could introduce volatility, the current trajectory suggests that mortgage rates are on a downward path in the near term.

The Federal Reserve has maintained the federal funds rate after making three rate cuts in 2024 (a 0.50 percentage point cut in September, followed by quarter-point reductions in November and December). For its second meeting of 2025, the Fed opted to hold rates steady, and it’s possible the central bank may not make another rate cut for months.

To understand how the Fed impacts mortgage rates, explore this guide from the Consumer Financial Protection Bureau.

Political and Economic Factors

Two significant wild cards for the housing market include the potential impact of tariffs and immigration policies, both of which could be destabilizing to the economy—especially in agriculture and construction—and lead to a rebound in inflation.

Market uncertainties related to new administration policies may impact the labor market, interest rates, and building supplies. For example, possible immigration crackdowns may reduce the construction labor force.

For more insights on how policy changes affect housing, review this economic policy analysis.

Outlook for the Remainder of 2025

The housing market in 2025 is expected to see modest improvements in affordability as rates gradually decline, but significant challenges remain. Homebuyers shouldn’t expect a return to the ultra-low rates of the pandemic era anytime soon.

According to recent projections, the Federal Reserve doesn’t anticipate inflation subsiding to 2.0% consistently until early 2026, meaning higher but gradually declining short-term interest rates throughout 2025.

For a comprehensive view of the housing market outlook, explore these five-year housing market predictions and the current state of the U.S. housing market.

Conclusion

For those navigating the housing market in 2025, the key takeaway is that while mortgage rates have eased slightly from their recent peaks, they remain elevated compared to the historically low rates of 2020-2021. Prospective buyers should focus on what they can afford in the current market rather than waiting for significant rate drops that may not materialize in the near term.

The gradual downward trend in rates, combined with increasing inventory, presents opportunities for well-prepared buyers. Those who can secure financing at today’s rates and find properties that meet their needs may benefit from less competition than during the frenzied pandemic housing market.

Additional Resources

This article is for informational purposes only and does not constitute financial advice. Consult with a qualified mortgage professional about your specific situation.



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