As financial markets are being rattled by the precarious impacts of the Trump administration’s tariffs and other fiscal policies, mortgage rates continue to ride out the storm, holding close to 7%.
Most economic forecasts call for a gradual decline in mortgage rates this year, but homebuyers shouldn’t expect miracles. Fannie Mae expects average 30-year fixed mortgage rates to remain above 6.5% for most of the year.
Predictions for slightly lower mortgage rates in late 2025 are based on expectations for cooler inflation, a weaker labor market and more rate cuts by the Federal Reserve. Yet none of these appear to be imminent.
Last week, the January Consumer Price Index showed inflation rising by 3% over the past 12 months, moving away from the Fed’s target of 2%. If the central bank does resume cutting interest rates, it’s not likely to be until summer or fall.
Moreover, the prospect of trade wars, mass deportations and a ballooning federal tax deficit sparks uncertainty in the bond market, where mortgage rates are closely tied. The 30-year fixed mortgage rate (the most popular home loan term) is benchmarked to the 10-year Treasury note, so higher bond yields translate to higher mortgage rates.
Experts warn that the ongoing threat of tariffs could also negatively impact housing affordability by putting upward pressure on borrowing rates and the cost of building materials, like lumber, used to build new homes.
Today’s unaffordable housing market is caused by a combination of high mortgage rates, a long-standing housing shortage, expensive home prices, and a loss of purchasing power due to inflation.
