As 2025 begins, mortgage rates remain elevated, with the 30-year fixed-rate mortgage averaging 6.91% this week, marking the highest level since July. This is a significant increase from the 6.62% rate recorded a year ago. Mortgage News Daily reports an even higher rate of 7.07% as of January 2. Despite these elevated rates, homebuyers are adjusting to the new reality, leading to surprising resilience in the housing market.
Homebuyers Recalibrate Expectations
Over the past two years, mortgage rates have consistently remained above 6%, prompting buyers to recalibrate their expectations. National Association of Realtors (NAR) Chief Economist Lawrence Yun observes that buyers have stopped waiting for substantial rate declines and are taking advantage of increased housing inventory. This shift in mindset is evident in the 2.2% month-over-month increase in pending home sales in November and a 6.9% year-over-year growth across all U.S. regions. Notably, the West experienced the highest growth at 11.8%, followed by the South (8.5%), Northeast (5.6%), and Midwest (1.6%). This activity marks a departure from the seller’s market dominance of recent years.
High Rates and Persistent Inflation
The persistence of high mortgage rates is tied to broader economic factors. Predictions of fewer Federal Reserve rate cuts in 2025, combined with ongoing inflationary pressures, have kept rates near 7%. Joel Berner, senior economist at Realtor.com, describes the housing market as “feeling the heat” of these elevated rates. Nevertheless, the market has shown resilience, with both existing and new home sales increasing year-over-year, supported by an inventory boost of 17.5% compared to last December. This expanded inventory offers potential opportunities for buyers aiming to secure homes before the typically busier spring season.
Seasonal Slowdowns and Market Challenges
December brought a traditional slowdown in housing activity, compounded by the rise in mortgage rates and holiday distractions. According to the Mortgage Bankers Association (MBA), mortgage applications fell by 21.9% compared to two weeks earlier. Both refinance and purchase applications declined, reflecting the seasonal lull and the impact of rising rates. Mike Fratantoni, MBA’s chief economist, attributes this drop to the combined effects of the rate increases and the general slowdown in housing activity during the holiday season.
Dave’s Final Thoughts…
While mortgage rates nearing 7% pose challenges for buyers and sellers alike, the market continues to demonstrate adaptability. Increased inventory and adjusted buyer expectations have sustained sales growth, even in the face of economic uncertainties. As the housing market navigates these conditions, winter may offer strategic opportunities for proactive buyers to capitalize on less competitive conditions before the anticipated spring surge.
David Gooden is the co-founder of LakePlace.com & a Lake Minnetonka Realtor.