What a difference a year makes. By the end of 2023, mortgage rates have dropped by about 150 basis points which should be reflected in the new year.
Meanwhile, mortgage rates jumped nearly 100 basis points to close 2024. Ouch!
In other words, things looked bright heading into 2024, and I feel bleak by comparison heading into 2025.
Despite that, the 30-year schedule is not that different from last year.
Prices were actually about neck and neck until they split in mid-December.
Credit Rating Sentiment Has Worse
At a glance, the 30-year average reached about 7.07%, per Mortgage News Daily, and 6.91%, per Freddie Mac.
According to Freddie, it’s the worst average going back to July, meaning it’s been the worst in 30 years on record.
Whether that points to some relief soon is another question, but it is very different in late 2023 and early 2024.
A year ago, the 30-year hiatus was finally starting to show signs that it was over and that the worst was behind us.
After all, the 30-year fixed rate rose more than 8% in October 2023 and fell to around 6.625% by the end of the year.
So things were looking up as we approached 2024, mainly because the Fed had shown it was ready to roll.
It would no longer raise its fed funds rate, and the possibility of a rate cut was on the table.
That proved to be true, although it took nearly nine months for the Fed to finally act on that rate cut.
And lo and behold, the 30-year fixed started to go up when the Fed finally cut it, which quickly got everyone confused.
Today, prospective home buyers face mortgage rates that are more than one percent higher than they were three months ago.
Will Mortgage Rates Get Better or Worse in the Spring?
Looking back to early 2024, mortgage rates actually rebounded sharply after experiencing that steep drop to the mid-6s from 8%.
Maybe it was too good and too unsustainable. At that time, we were still struggling with inflation and there were a lot of fake heads.
The 30-year fixed returned to around 7.50% in April, putting a damper on a strong spring housing market.
When all is said and done (we’re counting), 2024 may go down as the low for home sales this cycle.
All that talk of homebuyers running back didn’t happen. There was an idea that buyers would strike early to “beat the run,” but that run never came. Instead they were told to wait again.
Now the millionth question; will things be different in 2025? Will home buyers rush back this year?
That may depend on what mortgage rates do this spring. One could argue that it needs to be improved given the dramatic increase in the 2024 shutdown.
The 30-year default was around 6% in September and rose to 7% on renewed inflation concerns and a stronger-than-expected jobs report.
But history still says that mortgage rates tend to fall temporarily after a Fed pivot. And so far they remain above pre-pivot levels.
Can Home Buyers Wait Longer?
So we know that mortgage rates will play a role here, as they always do. But another thing to consider in 2025 home buyer patience.
Many who wanted to buy a home last year may have held back after prices experienced an unexpected spike.
It was a gut punch after it became apparent that prices were clear and retreating to more palatable levels.
For these people, plans were postponed for another year, although life must go on. And the more time goes by, the more everyone gets used to these high loan rates.
Human psychology is at play and a rate starting at 6% or even 7% is no longer an alarmingly large rate.
We are used to it now. And we’ve all seen worse, with rates in the 8% range by late 2023 as noted.
The problem, however, is that affordability remains historically poor. Prices are one part of the problem, but not all.
There’s also a higher asking price to contend with, as well as higher property taxes and higher homeowner’s insurance premiums.
All in all, the total mortgage payment (PITI) may be out of pencil, just as someone wants to own a home today.
So it’s likely that real estate agents will need to get more serious and lower their asking prices, or we’ll need mortgage rate relief as we head into spring.
Otherwise it will be another bad year for the real estate market, at least in terms of sales.
Read on: Home Price Forecasts to 2025: Where Do They Go From Here?
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on Twitter for the latest.
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