Buyers, Agents Watching Rates in 2025

NEW YORK — Even as real estate agents express optimism for the housing market in 2025, a new study from Clever Real Estate found that about 42% of homebuyers still expect mortgage rates to be a challenge. With rising prices, two-thirds of buyers worry they'll have to delay their home purchase.

It's a troubling reality for a housing market that's faced numerous headwinds as consumers continue to feel the high inflation of recent years and the economic uncertainty of a new presidential administration.

Today's mortgage rates vs. historical averages

Current 30-year mortgage rates have peaked in recent years, following historic lows during the COVID-19 pandemic, when they sunk to just 2.66% on Dec. 24, 2020. At that rate, the monthly payment on a $400,000 home would be about $1,923, compared to the roughly $2,700 buyers would pay with current rates.

However, today's rates are by no means the highest on record. Despite their peak of 7.79% on October 26, 2023, rates have been steadily falling since reaching a high of 18.63% in October 1981. Such rates today would more than double monthly house payments.

"The key point here is to remind potential borrowers that the rates we are seeing today are not 'high' from a historical perspective," said Dr. Shelton Weeks, the Lucas Professor of Real Estate at Florida Gulf Coast University. "If they are able to secure fixed-rate financing below 7.0%, they should take advantage of the opportunity to borrow at historically low rates."

Still, today's rates are the highest some generations of homeowners have faced. Alongside inflation, nearly half of buyers expect prices in their local housing market to increase in 2025.

Impact of mortgage rates on the larger housing market

If mortgage rates continue to scare buyers, 2025's overall housing market will feel the effects. Eric Bramlett, owner of Bramlett Real Estate in Austin, Texas, said lesser affordability typically causes lending standards to tighten. Moreover, a slower market forces sellers to drop their asking prices or stay on the market longer.

"Fewer buyers mean fewer offers, and sellers start feeling the pinch," he said. "Prices don't stay sky-high when buyers have to pull back. Buyers get cautious, sellers lower expectations — it's a balancing act that's hard to predict."

Mortgage rates affect every decision in the housing market. Homeowners who secured 5% rates or less are hesitant to sell their homes and buy new ones, further limiting the tight housing supply. As of November, Freddie Mac estimates the U.S. is short 3.7 million housing units.

The shortage, in turn, keeps home prices elevated. The National Association of Realtors® (NAR) reports that the median sales price rose to $406,100 in November, a 4.7% year-over-year (YOY) increase. This was the 17th consecutive month that home prices saw a YOY rise.

The combination of high prices and mortgage rates brings buyers full circle — back to the sidelines. When buyer demand drops, new home construction slows.

"The rates that we are seeing in the market are impacting the cost of real estate development, which is the pipeline for new inventory being added in the market," Weeks said. "By raising the cost for developers, the rates are also putting upward pressure on future home prices."

What's ahead? Could another Fed rate cut help?

Many experts believe rates will stay at or above their current levels in 2025, maybe longer. However, some level of uncertainty often follows the start of any new presidential administration or shift in political party control.

During President Trump's first term in office, he attempted to privatize Fannie Mae and Freddie Mac, which guarantee 70% of U.S. mortgages. He's expected to try again, which economists warn would make it more expensive for many Americans to secure a mortgage, adding $1,800 to $2,800 per year to their notes. Those with lower credit scores or incomes could see a higher increase.

"However, any significant changes to rates will take time to filter through," said Joy Aumann, co-founder of Luxury SoCal Realty in California. "It's more likely that we will see gradual movements based on economic stability and inflation control."

Trump has also promised to enact tariff hikes on Mexico, Canada, and China, which could drive costs and inflation back up. This could lead the Fed to slow or pause its rate cuts — it has already pared the projected four rate cuts for 2025 down to two.

Mortgage rates sometimes drop alongside Fed cuts, but they're most closely linked to the 10-year Treasury bond yield. Because both are considered long-term investments, they generally move in the same direction. The yield surged after Trump's election, mainly driven by concerns that his proposed tariffs would increase inflation.

"Some would argue that if deficits go up, so too will long-term rates," said Richard Green, professor of finance and business economics at the University of Southern California Marshall School of Business.

Before the presidential election, Fannie Mae forecasted that 30-year fixed mortgage rates would fall to 5.7% in 2025. Post-election, it believes the rate will average 6.7% in 2025.

What can buyers and sellers do?

Mortgage rates have always been unpredictable. The best strategy for buyers and sellers is to stay informed and be ready to adapt.

"It's not an easy time, but it's manageable if you understand how to work within the current landscape," Bramlett said.

Experts advise buyers to focus on their credit — generally, a better score means a better rate. Another option is saving for a higher down payment, which reduces the loan amount and the interest borrowers pay over time.

While a 20% down payment was once the standard, 61% of buyers surveyed expect to put down less. About a third are planning a down payment of less than 10%. For comparison, in 2024, the median down payment among all buyers was 18%. First-time buyers put 9% down, and repeat buyers put 23% down.

"Some buyers look at adjustable-rate mortgages, which start lower but can rise later, so it's a calculated risk," said Ryan Fitzgerald, owner of Raleigh Realty in North Carolina. "Government programs like FHA loans can also be a lifeline for those struggling with affordability."

Sellers can adjust to the market by pricing their homes competitively. While low locked-in mortgage rates have kept some homes off the market, most owners will eventually have to sell. Depending on the equity in their homes, those who need to sell one house to buy another can use the profit to make a larger down payment. This should help offset the increased mortgage rates.

Choosing a low-commission real estate agent can also help sellers keep more profits. These agents charge less than the average listing agent fee of 2.74% — typically as low as 1.5% — which could save sellers more than $4,000 in fees on a $400,000 home sale. Another option is to use a flat-fee real estate company that sells homes for a fixed fee.

Despite challenges, agents are optimistic about 2025

Overall, 85% of real estate agents are optimistic about the 2025 housing market, and 70% expect it to be more stable. Sellers will likely still have the advantage, and steadying mortgage rates could draw more buyers from the sidelines.

Existing home sales rebounded in the last quarter of 2024, jumping 6.1% YOY following a 14-year low in September. This could indicate buyers are finally getting used to 6–7% mortgage rates.

"The best approach for buyers is to focus on long-term affordability rather than just the monthly payment," Aumann said. "Sellers can mitigate challenges by preparing their homes for sale and focusing on the long-term value, as prices are expected to rise in 2025."

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