Here is where experts say mortgage rates could go in the New Year

Elevated mortgage rates, which have been the biggest housing story of 2024, will continue to remain near 7% into the New Year with no relief in sight.

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Freddie Mac’s last Primary Mortgage Survey of 2024 saw the 30-year fixed-rate mortgage average 6.85% on Dec. 26, up from the previous week’s average of 6.72%. One year earlier, the 30-year average rate had been 6.61%. The 15-year fixed-rate mortgage was also up from one year ago, reaching 6.0% for Dec. 26, increasing from 5.93% this time in 2023.

The fact that mortgage rates have gone up after the Federal Reserve made its third consecutive cut on Dec. 18, reducing the federal funds rate by 1% in 2024, has created uncertainty in the housing industry as homebuyers face a new normal.

The reasons for the stubbornly higher mortgage rates continue to be a worry about the strong economy, lack of housing inventory and questions about how the Trump administration will impact the economy. Housing industry experts maintain that some of the new administration’s stated policies could turn out to be inflationary.

“While a slight improvement in new and existing home sales is encouraging, the market remains plagued by an overwhelming undersupply of homes,” said Same Khater, Freddie Mac’s chief economist. “A strong economy can help build momentum heading into the new year and potentially boost purchase activity.”

Robert Reffkin, co-founder and CEO of online real estate brokerage Compass Incorporated, said that before the presidential election in November, he had envisioned rates dropping below 6% in 2025, but not anymore. That was mainly due to the talk of tariffs and other inflationary policies pushing the 10-year Treasury yield up. He expects it to stay elevated for the next two years.

“We no longer have the view that rates are going to get into the 5s next year, or even the following year,” Reffkin said recently on CNBC. “We believe mortgage rates will remain in the 6% range for the next two years and home prices will rise 3% to 5% next year.”

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Reffkin said that another pinch point for prices and mortgage rates is the lack of housing inventory, which has improved during the past three years, but is still about 22% below pre-pandemic levels. He expects that the industry will continue to catch up in 2025 and could end the year with 15% more housing inventory. That increase will mainly be in the Sun Belt states where homebuying and construction has remained strong. “There’s a chance we will be back to pre-pandemic [inventory] levels next year,” Reffkin said.

Jessica Lautz, the deputy chief economist and vice president of research for the National Association of Realtors, pointed out the financial hardship facing homebuyers. She estimates that a 30-year fixed-rate mortgage at 6.85%, with 20% down, would result in a monthly mortgage payment of $2,097 on a $400,000 home. With 10% down, the typical monthly payment would be $2,359.

She said the good news is that homebuying activity has increased despite higher interest rates for the last two weeks, as buyers are taking advantage of inventory increases. But the Federal Reserve’s moderating tone on future rate cuts could be a problem.

“More cuts are expected, but how many is the question into the new year,” Lautz wrote in a blog. “Buyers are resigned to the fact that mortgage rates are, and are expected to be, in the 6% range for the foreseeable future.”