Are you a potential homebuyer wondering what interest rates will look like this year?
If so, you’re not alone: 80 percent of homebuyers say they’re waiting for mortgage rates to drop before buying a home, according to a recent poll.
That’s an increase from 2024 and 2023 polling, when about two-thirds said they were holding out on breaking into the market in case rates dropped. Of buyers waiting for rates to ease up, 25 percent said they were waiting for mortgage rates of five percent or lower.
Here’s what to expect for 2025.
Predictions for 2025 Interest Rates: Rates May Begin to Lower by Year End
Interest rates have stayed at under seven percent for nine consecutive weeks as of late March 2025 – a steadiness that’s been helpful for potential buyers and sellers alike to plan around.
Rates have gradually risen by over five percentage points since bottoming out to historically low levels during the COVID-19 pandemic, reaching a record-breaking 2.65 percent in January 2021. From there, they peaked at a high of 7.79 percent in October 2023 before easing to around 6.2 percent by September 2024, the Consumer Financial Protection Bureau reported.
| Interest rate fluctuations: | |
|---|---|
| January 2021 | 2.65 percent |
| April 2022 | 5 percent |
| October 2023 | 7.79 percent |
| September 2024 | 6.2 percent |
| March 2025 | 6.67 percent |
It’s been a costly rollercoaster for homebuyers, depending on when they secured a home loan: mortgage payments on a $400,000 home had risen by over $1,200 from the 2021 record lows to the 2023 record highs, the CFPB says.
When mortgage interest rates jumped to five percent in April 2022, it was the first time they had been that high since 2011 – more than 11 years earlier.
Now, rates seem to have leveled out and housing and finance industry experts alike suspect they’ll hold steady for the rest of the year.
In their annual forecasting, the Mortgage Bankers Association and the National Association of Realtors both suggested rates could sit at 6.50 percent in 2025 – and may tick even lower by 2026 to six percent.
For its part, the National Association of Home Builders predicts that rates will average 6.65 percent in 2025, and decrease to 6.19 percent in 2026.
Meanwhile, Fannie Mae pegs 30-year mortgage rates at 6.60 percent by the end of 2025, falling to 6.50 percent in 2026; analysts said mortgage rates may stay “higher for longer.” JP Morgan’s economists feel the same way – in their 2025 housing outlook, they suggest the “higher-for-longer interest rate backdrop is here to stay” with rates expected to linger around 6.7 percent to December.
Across the board, experts are hedging their bets on rates sticking to somewhere between 6.2 percent to 6.7 percent – not too far off from March 2025’s 6.67 percent average rate.
Economic factors at play affecting interest rates – and home prices
A mix of economic forces are influencing both interest rates on offer to homebuyers and the prices of new and existing homes on the market. And they could still push rates and home prices in either direction. They include:
Tariffs and trade tensions Tariffs are coming into effect in 2025 that are adding hefty taxes on key construction materials and major appliances that home builders need to import into the country. Home building essentials, spanning lumber, concrete and cement, steel and aluminum, are about to be up to 40 percent more costly for the home construction industry – a cost that will eventually seep into the hands of homebuyers. It's too early to speculate on how this may affect homebuyers – there may be fewer new homes on the market, spurring demand.
Stock market volatility Recent dips in the stock market this year are reflecting investor uncertainty around the new Trump administration and its trade policies. For many would-be buyers, shrinking investment portfolios mean less cash for down payments or the confidence to stretch budgets. When the stock market spirals, investors often shift their money into U.S. Treasury bonds because they’re considered a safer bet, backed by the government. This surge in demand pushes bond prices up and Treasury yields down. Since mortgage rates tend to follow the 10-year Treasury yield, falling yields can lead to lower mortgage interest rates, offering some relief to homebuyers.
Inflation and cost-of-living pressures We’re all too familiar with feeling the squeeze on everyday staples (including skyrocketing egg prices!) after years of cost-of-living concerns across utilities, groceries and gas. But inflation is starting to ease up – and this means interest rates may follow suit. Inflation and interest rates are intertwined – when inflation creeps up, the cost of goods and services increases, reducing the purchasing power of money. To combat this, the Federal Reserve will raise its benchmark interest rate to slow down spending and borrowing. This move, in turn, pushes mortgage rates higher. But when inflation eases, mortgage rates let up too, making homes more affordable, potentially driving up market demand. In short: rates may decrease but home prices may escalate as more prospective buyers compete for property. It’s a matter of watching how the above factors affect inflation in the coming months.
How to plan ahead as a 2025 homebuyer
For homebuyers in 2025, the key to navigating this market is preparation and flexibility. With mortgage rates likely to hover around six to just below seven percent, waiting for a dramatic drop may leave you sitting on the sidelines longer than expected. Instead of trying to time the market perfectly, focus on what you can control – your financial readiness.
Start by strengthening your credit score, paying down debt, and saving as much as possible for your down payment. The more you can put down, the better your chances of qualifying for a lower rate and more manageable monthly payments.
Get pre-approved with multiple lenders to compare offers — researchers say that 45 percent of first-time home buyers who shop multiple lenders got a better rate, which can save you thousands of dollars over the years. Keep your options open, too. You can always buy now and refinance later.
Explore new construction homes over resale homes as builders are more willing to negotiate major incentives in the face of high mortgage rates. They’re worthwhile benefits for homebuyers, spanning rate buydowns, zero or low-down-payment options, help with closing costs, paid HOA fees, and discounted upgrades.
At the end of the day, the best time to buy is when it makes sense for your life – not just when interest rates hit a certain number. Stay informed, stay flexible, and make a plan that works for your budget and long-term goals.
