Mortgage Rates Decline, Affordability Still a Challenge

Mortgage rates are expected to decline slightly in 2025, offering a glimmer of hope for prospective buyers amid the ongoing housing affordability crisis in the U.S. According to Realtor.com's latest housing forecast, the average 30-year fixed-rate mortgage will hover around 6.3% for most of the year and end slightly lower at 6.2%. While this marks an improvement from current rates, it is unlikely to provide significant relief for many would-be buyers struggling with high housing costs.

Realtor.com's report acknowledges mortgage rates as a major wildcard in the 2025 housing market, noting that economic and policy uncertainties could lead to deviations from the forecast. Danielle Hale, the platform's chief economist, emphasized that mortgage rates will play a critical role in determining housing affordability. "As home prices stay high, housing affordability is going to be make it or break it for many households, and mortgage rates will be the factor that tips the scales for many buyers and sellers, too," Hale explained.

Currently, mortgage rates remain elevated. Freddie Mac's latest survey shows the average 30-year fixed-rate mortgage at 6.81%, a slight improvement from the 7.22% peak seen a year ago. However, this still poses a challenge for many homeowners and potential buyers. According to a Zillow survey, approximately 80% of current mortgage holders have a rate below 5%, leading many to hold out from selling or buying due to what experts refer to as the "lock-in effect."

While the anticipated dip in mortgage rates in 2025 is expected to keep housing costs relatively stable, it may not be enough to spark a dramatic change in affordability. Hale predicts that higher incomes will provide some relief, allowing modest improvements in affordability and a slight uptick in home sales. "The modest decline in mortgage rates will not support a big reset in the lock-in effect for existing homeowners, but time and life events are expected to reduce the share of mortgages under 6% from 84% in mid-2024 to 75% by the end of 2025," she added.

The trajectory of mortgage rates will significantly impact home sales. A faster-than-anticipated decline could stimulate more robust growth in sales, while persistently high rates would likely constrain market activity. With many households still grappling with affordability challenges, the housing market in 2025 remains poised for only gradual improvements, hinging heavily on the economic and policy developments of the year ahead.

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