What This Means for the Housing Market in 2025

Mortgage rates are keeping the pressure on as 2025 kicks off. The 30-year fixed mortgage rate dipped slightly to 6.99%, down 0.02%, while jumbo loans climbed to 7.02%, according to Bankrate data. Despite the Federal Reserve cutting interest rates three times since September, mortgage rates have climbed 0.71% from their fall lows. This trend leaves investors cautious, as affordability remains a key issue. As Ken Johnson, Walker Family Chair of Real Estate at the University of Mississippi, puts it, For those expecting a dramatic drop in 30-year mortgage financing rates, 2025 is probably not the year.

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Freddie Mac’s (FMCC) latest survey reinforces the challenge: the 30-year fixed rate hit 6.91%, its highest since mid-2024. The 15-year fixed isn’t spared either, climbing to 6.13%. Sam Khater, Freddie Mac’s chief economist explained that mortgage rates are knocking on the door of 7%, creating a perfect storm for affordability. Demand has stagnated, with buyers priced out and refinancing volumes hitting a wall. Housing-related stocks and REITs are in a tough spot, with investors asking whether the sector can weather prolonged headwinds or if this year will see more struggles for real estate-linked investments.

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The takeaway? Don’t count on a quick fix. With high rates likely sticking around, the housing market remains in the deep freeze. As Johnson notes, For those expecting a dramatic drop in 30-year mortgage financing rates, 2025 is probably not the year. Investors will need to think strategically, exploring sectors that thrive in high-rate environments or are insulated from the housing market’s woes. The opportunity for gains is therebut only for those ready to adapt to a shifting landscape.

This article first appeared on GuruFocus.