Mortgage rates can change daily and even hourly.
The housing market has remained relatively unchanged this year. According to Bankrate data, the average rate for a 30-year fixed mortgage is around 6.9%. Rates are projected to remain in the current range, between 6.5% and 7%, for a while.
Since late January, the mortgage market has followed a somewhat parallel path to the White House's erratic policies, shifting between volatility and recovery and then back to volatility.
For example, while home sales slightly increased in February, mortgage activity plummeted the following month. In April, President Donald Trump's tariff announcement sparked widespread inflationary anxiety and caused the stock market to sell off, giving buyers another reason to wait. Earlier in May, there was a boost in homebuyer demand as markets cheered a temporary US-China tariff truce.
In short, today's economic instability has a significant impact on the housing market.
"Uncertainty tied to higher inflation has kept mortgage rates high, which has led to lower affordability of monthly mortgage payments, keeping some potential buyers out of the market," said Molly Boesel, principal economist at Cotality.
If housing inventory increases, inflation slows and mortgage rates move down, would-be buyers could start to move off the sidelines. But financial experts caution that rising prices could throw a wrench in the Federal Reserve's expected path for interest rate cuts, forcing homebuyers to adjust to expensive borrowing rates — as well as steep home prices — over the long term.
Here's why that matters.
Why mortgage rates are unlikely to drop dramatically
Mortgage interest rates, which are highly sensitive to government policy and economic growth, are closely tied to the 10-year Treasury bond yield. Bond market investors drive yields higher or lower based on where the economy is going and what they expect from the Fed's monetary decisions.
Economists have warned that the Trump administration's sweeping tariffs, tax cuts and austerity measures are likely to result in higher inflation and increased federal deficits. That means overall borrowing rates — including for home loans — are also likely to stay high.
The Fed cut interest rates three times in 2024, making borrowing costs slightly less restrictive.
"Coming into the year, the Fed was prepared to cut rates if the labor market began to weaken, since it seemed like inflation risk had mostly eased," said Alex Thomas, senior research analyst at John Burns Research and Consulting.
However, the Fed has been in a holding pattern since then, waiting to see the long-term implications of Trump's policies before it cuts rates again. Financial analysts expect domestic companies to pass expensive duties onto consumers in the form of higher retail prices, which would kick inflation back up.
"Given the potential inflationary impact of wide-reaching tariffs, the Fed will be more hesitant to cut until the labor market weakens significantly,” Thomas said.
Investors are now predicting the Fed will delay interest rate cuts until September. While the Fed's actions don't immediately dictate mortgage rates, they indirectly influence how much it costs to borrow money across the economy.
What homebuyers should expect in 2025 and beyond
Due to the administration's back-and-forth trade policy, mortgage rates haven't moved steadily in one direction, and that shakiness is likely to continue, according to Hannah Jones, senior research analyst at Realtor.com.
"Any unexpected policy changes or especially surprising economic data could lead to bigger swings in rates," Jones said.
Elevated mortgage rates have been a painful reality for the housing market for around three years. So, while cost-prohibitive mortgage rates are a major hurdle, they aren't a new phenomenon to prospective buyers.
“Buyers have realized now that rates are not going to drop dramatically,” said Erin Sykes, housing economist and founder of Sykes Properties. Over the long term, Sykes sees average 30-year fixed rates between 5.5% and 6.5% as the new normal.
Even if the housing market acclimates to higher mortgage rates in the years to come, consumers need to feel confident about the economy before they commit to one of the biggest financial investments of their lives.
When households are struggling with the impact of higher prices and decreased purchasing power, not to mention a lack of stable employment, they'll be less likely to buy homes.
Tips for navigating an uncertain housing market
If you're waiting for mortgage rates to come down before buying, keep in mind that the large-scale economic issues affecting the housing market are beyond your control. However, there are ways to bring down your individual mortgage rate.
"With borrowing costs elevated, buyers can take steps to reduce their housing expenses by securing a lower mortgage rate," said Jones.
For example, being financially prepared and shopping around for lenders can save borrowers up to 1.5% on their mortgage rate. Since each lender offers different rates and terms, comparing offers from multiple lenders can also help you negotiate a better rate. If you can't snag a low rate but are ready to buy, you can always refinance down the road.
Jones said other strategies for lowering your mortgage rate include improving your credit score, making a larger down payment or choosing a more affordable home.
When weighing the pros and cons of homeownership, experts recommend making a homebuying budget and sticking to it. Creating a realistic financial plan can help you decide if you can handle the costs of homeownership and provide you with some figures for how large your mortgage should be.
More on today's housing market
- How the Federal Reserve's Decisions Affect Mortgage Rates
- Why Fed Rate Cuts Aren't a Cure-All for High Mortgage Rates
- Most Homebuyers Won't Budge Until Mortgage Rates Drop to 4%, CNET Survey Finds
- You Might Be Eager to Buy a House, but Homeowners Are Holding Tight to Their Mortgages
- Despite Lower Mortgage Rates, Another Refinancing Boom Isn't Likely. Here's Why
- Forget Mortgage Rates. Americans Say They Can't Even Save for a Down Payment
