
After a stretch of increases lasting over a month, mortgage rates have finally dipped below 7%, providing some hope for prospective homebuyers. According to Freddie Mac’s Primary Mortgage Market Survey, the 30-year fixed-rate fell to 6.96% on January 23, down from 7.04% the previous week. This rate drop took place during the first week of President Trump’s second term when the financial markets were assessing the economic impact of his policies.
Sam Khater, Freddie Mac’s chief economist, elaborates on this drop in rates, stating, “After crossing the 7%-mark last week, the 30-year fixed-rate mortgage saw its first decline in six weeks. While affordability challenges remain, this is welcome news for potential homebuyers, as reflected in a corresponding uptick in purchase applications.”
Why Mortgage Rates are Dropping
Mortgage rates have dropped, in part, due to current economic factors. Earlier this month, Treasury yields rose because of inflation fears, and mortgage rates typically follow suit. However, recent signs from the Trump administration indicating a not so harsh position on tariffs than anticipated, have settled some inflation worries, for the time being. With this possibility of avoiding a strict trade approach, the President’s actions may have helped stabilize the market, leading to lower borrowing costs.
U.S. weekly averages as of 01/23/2025
Actual inflation data also played a role in mortgage rates finally lowering a bit. While December saw a small rise in annual inflation to 2.9%, core inflation, excluding volatile food and energy prices, experienced a pace of growth that was its most sluggish since July.
Housing Affordability Expected to Remain an Issue
Although this decline in rates is a positive change, it certainly doesn’t fix the housing crisis homebuyers have been dealing with. As it stands, with the 30-year rate still hovering near 7%, homes continue to be too expensive to finance for most, especially with rising property prices.
The median U.S. home price, reported at $406,100 in November 2024, represents a nearly 5% increase from the previous year. For many middle-income Americans, the steep monthly payments required under current rates place homeownership out of reach, pushing some to continue renting.
Related Article: Report States Renting More Affordable Than Buying Indicating Financial Security for Investors
Even industry experts remain cautious about long-term improvements. Fannie Mae, in its January housing market forecast, predicts that mortgage rates may average 6.5% by the end of the year, which offers only marginal relief. Additionally, housing sales are expected to remain slow well into 2025, with not much improvement from 2024, which proved to be the slowest year for home sales in almost three decades.
Impact Of Current Drop in Rates
The drop in rates caused purchase applications to rise as well, highlighting how eager pent-up buyers have been to jump into the market. Even so, the uptick in applications is small, and this is due to the combination of high home prices and borrowing costs that are still too high for the average person.
Although there are ongoing housing market challenges, such as affordability issues, the decline in mortgage rates is certainly a positive step toward market stabilization.
Analysts feel rates could drop further if inflation slows or new housing affordability measures are added. For instance, President Trump’s recent executive order regarding the housing affordability crisis would be a step in the right direction for long-term improvements by reducing construction costs and streamlining the building permit process. Still, these potential benefits would take some time to make a difference within the housing sector.
An Uncertain Path for Mortgage Rates in 2025
While the recent fall in rates is hopeful, and certain economic factors point toward a possible positive correction of the housing market, many are still being realistic that this could all take time because economic volatility still persists, and fluctuations in rates can still occur – meaning it may still be a rocky road ahead for both buyers and sellers through a good portion of 2025.
Related Article: Home Affordability Crisis Drives Up Demand for Rentals
For now, however, the decline below 7% offers some who have been waiting for even a small decline to try and move forward with a home purchase. If rates can stabilize at even lower levels, even for a brief period of time, more potential buyers may re-enter the market, which would bring a small boost to the housing sector.
When this uptick in buyer activity will take place is not clear. However, Lisa Sturtevant, chief economist at Bright MLS, gives her perspective on the timeline, stating, “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. 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.”
Investors Take Advantage of the Current Housing Market
This week, mortgage rates have moved in a positive direction, but with so much uncertainty, it’s unclear what moves buyers and sellers will be taking in the next few months. It’s well known that spring is the busiest season, but buyers may hold out for lower rates, and sellers may stay put.
Either way, real estate investors are encouraged to make their move now and not focus on “timing the market.” It’s best to concentrate on “time in the market” to build equity and “get in” before prices rise further. In addition to this, jumping in now allows investors to avoid the bidding wars that may occur when the market does pick up.
If you’d like to add a rental property to your portfolio before the market picks up pace, feel free to contact Morris Invest. We’re a full-service real estate investment company specializing in fully done-for-you new construction properties. We take care of all the steps for you to make owning a lucrative rental property easy – from placing a property manager and a tenant to helping you obtain funding and more. In the meantime, head over to our program page to see all that we can offer you on your real estate investment journey.
Before you go, dive into this video on the following topic – Housing Crisis: America Hits 5 MILLION Homes Short!