Mortgage rates have dropped over the early months of 2025, offering homebuyers an opportunity for some borrowing relief if they move ahead with the big-ticket purchase.
The housing market remains sluggish and wider economic uncertainty looms, however. President Donald Trump’s tariffs threaten to upend global trade and tip the U.S. into a downturn, experts said. Federal Reserve Chair Jerome Powell warned on Wednesday of a possible resurgence of inflation, which could trigger higher interest rates.
The mixed signals pose a quandary for homebuyers: Is it the right time to get into the market?
Lower mortgage rates ease the financial pain for prospective homebuyers, presenting an incentive at a moment when it appears unclear whether borrowing costs will drop any further, some analysts told ABC News.
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A tight housing market and a cloudy economic outlook may give homebuyers pause, however, as they weigh the large expense with financial conditions in flux, analysts added.
“It’s still a tough environment to find a house,” Lu Liu, a professor at the Wharton School at the University of Pennsylvania, told ABC News. “On the other hand, it’s unclear whether that environment will get any better.”
The average interest rate on a 30-year fixed mortgage stands at 6.76%, marking a decline from 7.04% in January, FreddieMac data shows. The current level of mortgage rates is roughly a percentage point lower than a recent peak attained in the fall of 2023.
Each percentage point decrease in a mortgage rate can save thousands or tens of thousands in additional cost each year, depending on the price of the house, according to Rocket Mortgage.
“Mortgage rates have seen substantial decline,” Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors, told ABC News. “It’s a measurable difference.”
Mortgage rates closely track the yield on a 10-year Treasury bond, or the amount paid to a bondholder annually. Bond yields are shaped in part by expectations of inflation, some experts said.
Since bonds pay a given investor a fixed amount each year, the specter of inflation risks devaluing the asset and in turn makes bonds less attractive. If inflation were to rise, those annual returns would get cut down as price increases erode the purchasing power of the fixed payout.
Bond yields rise as bond prices fall. When a selloff hits and demand for bonds dries up, it sends bond prices lower. In turn, bond yields move higher.
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