Mortgage forecast: Slight decline in interest rates will not improve housing affordability

If headlines say mortgage rates are the lowest in months, that doesn’t always mean a big drop.

According to the funding data, the average fixed mortgage rate drop in fixed mortgage interest rates in the last 30 years will not drop to 6.9%, which will not shake the housing market. Potential homebuyers are still playing the waiting game. Mortgage applications fell to their lowest levels since the beginning of 2025 in the week ended February 14, according to the Mortgage Bankers Association.

“We feel the limitations of low housing affordability and have more than a decade of real estate agents,” said Jason Walter, a member of the CNET Money expert review board. “Houses in the U.S. are 3-5% higher than last year, with an average 30-year fixed mortgage rate stuck near 7% for about two months,” Walter said.

While experts predict interest rates will drop throughout 2025, this is not a huge drop. Fannie Mae expects the average interest rate on fixed home loans in 30 years to remain above 6.5% for most of the year.

In addition to mortgage rates, potential home buyers are competing for long-standing housing shortages, high housing prices and losses from losing purchasing power due to inflation. Experts say many policies of the Trump administration, such as tariffs, could further weaken housing affordability, exacerbating interest rates and the cost of building materials used to build new homes.

What impacts on mortgage rates this week?

In order for mortgage rates to drop significantly, especially during the spring home buying season, there need to be signs of cool inflation. This will open the door for the Fed to cut more tax rates, but it looks unlikely now.

Recent data show that inflation has risen by 3% per year, away from the central bank's 2% target. If the Fed does decide to lower interest rates again, it is unlikely to happen in the summer or fall.

Uncertainty surrounding the new fiscal policy has also led to buyers' hesitation. The prospect of trade wars, mass deportations and fierce federal tax inadequacy could cause volatility in the bond market. The 30-year fixed mortgage rate (the most popular home loan term) is the 10-year Treasury note. Higher bond yields translate into higher borrowing costs for home loans.

“However, the good news for home buyers is that housing stock is rising and more homeowners choose to list their homes for sale,” Walter said.

Where are the mortgage interest rates in 2025?

In addition to daily volatility, mortgage rates are expected to remain between 6.5% and 7% over a period of time. These rates seem high compared to 2% in the pandemic era, but experts say the rock bottom rate is impossible without a severe recession. Since the 1970s, the average interest rate for fixed mortgages in 30 years has been around 7%.

Here are some of the factors that affect mortgage interest rates today:

Trump's economic policy: President Donald Trump's potential tax cuts and tariffs remain wildcards for mortgage rates. Experts say such moves can stimulate demand, increase deficits and accelerate inflation. Mortgage rates are highly sensitive to fiscal policy and economic growth.

The Federal Reserve lowers tax rates: Although the central bank does not directly set interest rates on home loans, mortgage rates are indirectly affected by the Federal Reserve's policy decisions. If incoming data shows higher inflation and a strong labor market, the Fed will delay future interest rates this year, which in turn will keep home loan rates high.

10-year fiscal rate of return: The average 30-year fixed mortgage rate closely tracks bond yields, especially the 10-year fiscal yield. If inflation and labor data continue to be strong, bond yields and mortgage rates will rise. The opposite will happen if unemployment rises or inflation cools down and the Fed resumes cutting speed.

Investor expectations: Bond investors are behaving expects that they believe will happen in the economy. The Fed's prospects for future monetary policy determine investors' trading strategies and risk assessments, which is why mortgage rates often jump or fall before adjusting interest rates.

Geopolitical situation: Mortgage rates are affected by geopolitical events, including military conflicts and elections. Political instability can lead to economic uncertainty, which can lead to more fluctuations in bond yields and mortgage rates.

Expert skills for home buyers

Try not to know what you can afford and rush to buy a home, so have a clear home budget. Here is what the experts suggest before buying a home:

💰Build your credit score. Your credit score will help determine if you are eligible for a mortgage and at what interest rate. A credit score of 740 or higher will help you get a lower interest rate.

💰 Save a bigger down payment. A larger down payment allows you to take out a smaller mortgage and get a lower interest rate from the lender. If you can afford it, a down payment of at least 20% will also eliminate private mortgage insurance.

💰Shopping Mortgage Lender. Comparing loan offers from multiple mortgage lenders can help you negotiate higher interest rates. Experts recommend getting at least two to three loan estimates from different lenders.

💰 Consider renting a house. Choosing to rent or buy a home doesn’t just compare monthly rents with mortgage payments. Rentals offer flexibility and reduced upfront costs, but purchasing allows you to build wealth and have more control over the cost of housing.

💰 Consider the mortgage point. You can earn a lower mortgage rate by purchasing mortgage points, with each point costing 1% of the total loan. One mortgage point equals your mortgage rate drops by 0.25%.

More information about today's housing market