Home buyers have been waiting for mortgage rates to drop enough to make buying a home more affordable. While rates have declined modestly from their peak in October 2023, most buyers haven’t seen enough change to prompt market activity.
The Fed recently announced its third interest rate cut in 2024, but mortgage rates haven’t been impacted much. In fact, weekly mortgage rates have ticked upwards since October despite rates coming down year-over-year.
Personal finance expert Dave Ramsey shared his prediction for how mortgage rates will change next year, and it may surprise buyers.
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Consumers may see some relief in 2025, but how much it will help home buyers remains to be seen.
Though interest rates are now a whole percentage point lower than they were over the summer, mortgage rates are determined by several other factors. Inflation, economic growth, and the 10-year treasury yield impact how mortgage rates change.
Ramsey reveals what home buyers should do next year and what they can expect from mortgage rates and housing prices.
Americans hoping to buy a home in 2025 should keep an eye on a few key economic conditions.
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2025 Mortgage rates will be dependent on inflation and Trump admin
Mortgage rates play a significant role in determining monthly mortgage payments. The difference between a 2% mortgage rate and a 7% mortgage rate can cost home buyers an additional $1,200 per month.
The current housing market logjam is caused by a combination of low inventory and persistently high mortgage rates. Adding more housing supply will reduce competition and likely drive prices down, but it could take years for the market to see the effects of new house construction.
Lower mortgage rates are the most direct way to spark housing market activity. However, fears of inflation reigniting and uncertainty over how Trump’s proposed policies will impact the economy keep mortgage rates high.
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Ramsey predicts that mortgage rates will taper slightly in 2025, but it likely won’t change drastically.
“Even though both 30-year and 15-year rates have gone up a bit since September, they’re still down significantly from the peak we saw in 2023 — and they’ll likely continue getting lower,” he wrote.
“We’re still a long way away from rates returning to the 2–3% range we saw at the end of 2021, but it’s great to see things trending in the right direction.”
While mortgage rates may decline modestly next year, consumers and policymakers anxiously await the outcome of a second Trump administration.
Fed chair Jerome Powell has committed to a more reserved fiscal policy in 2025, as the Board of Governors pause to see if Trump’s proposed tariffs, immigration, and deportation plans will increase inflation and lower U.S. GDP, as most economists have predicted.
Fed policy is only part of the mortgage rate equation
While interest rate cuts from the Fed are often seen as a good indicator that mortgage rates will fall, that is not always the case. 30-year mortgage rates increased following the first rate cut in September, likely due to political and economic uncertainty.
Ramsey explains how Fed interest rate cuts affect the larger mortgage rate landscape.
Related: Dave Ramsey has blunt words on mortgage rates and buying a home now
“The Fed doesn’t tell commercial banks what interest rates to charge on loans, but they do influence the banks’ rates by setting a target for the federal funds rate,” he continued.“So, even though the Federal Reserve doesn’t actually set mortgage rates, its decisions can still affect your mortgage.
“For example, when mortgage rates started going down in late 2023, the Fed hadn’t lowered the federal funds rate yet. Banks simply saw what was coming down the road and started lowering interest rates.”
Mortgage rates are also dependent on investor and lender sentiment as well as on anticipated policy changes. If banks anticipate that the Fed will continue interest rates next year — even at a slower pace — mortgage rates may come down.
If it looks like the Fed won’t plan for any interest rate cuts next year, mortgage rates may remain elevated.
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