Mortgage rates are on a bit of a downward trend, with the average rate on a 30-year fixed mortgage dropping from the 6.9% range in early February to around 6.7% this week. But a shaky economy will likely keep the housing market frozen for a while.
US stocks tumbled after President Donald Trump refused to rule out a full-blown recession in an interview Sunday. Prospective homebuyers are bracing for what Trump is now calling “a period of transition,” with steeper inflation, economic austerity and a slowing job market.
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Higher unemployment reduces consumer spending and slows demand, generally leading to lower mortgage rates, according to Colin Robertson, a mortgage industry expert and founder of The Truth About Mortgage website. Robertson added that “with uncertainty regarding tariffs, trade, and government spending, mortgage rates might be stuck in limbo.”
Housing giant Fannie Mae expects average mortgage rates to remain above 6.5% for most of the year. Lenders set rates depending on a range of factors, including investor expectations and the Federal Reserve’s monetary policy. Any shift in the economic outlook could change mortgage forecasts over the coming months.
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What’s causing lower mortgage rates this week?
Growing concerns over the Trump administration’s turbulent economic agenda have decreased investor confidence in the stock market and increased demand for bonds, lowering their yields. Falling bond yields translate to lower borrowing costs for homebuyers (the 30-year fixed-rate mortgage is closely tied to the 10-year Treasury note).
When lower mortgage rates are based on an expectation of slower economic growth, that’s “far from a desirable economic environment,” according to Matt Colyar, an economist at Moody’s Analytics. “This is not a rosy picture,” Colyar said.
In any case, slightly lower home loan rates this month won’t change the housing affordability equation, especially when household incomes can’t keep up with the high cost of living. Today’s mortgage rates are still higher than they were last September, as shown below.
What impact will the Fed have on rates?
The big question is how new jobs data and fiscal tightening will influence the Federal Reserve’s interest rate adjustments in the coming months. While the Fed doesn’t directly set mortgage rates, changes to its benchmark federal funds rate impact other consumer borrowing rates, like home loans, over the longterm.
After inflation had showed ongoing signs of slowing in late 2024, the Fed reduced interest rates three times. Yet, at its upcoming meeting on March 19, the central bank is unlikely to make any cuts. During a forum in New York last Friday, Fed chair Jerome Powell reiterated the need to hold rates steady based on the unpredictable effects of government policy. “We are well positioned to wait for greater clarity,” Powell said.
Markets anticipate that the Fed could resume cutting interest rates in May or June when it’s clear if there is an increased risk of a job-loss recession. The wave of federal layoffs and job cuts has not yet been reflected as a sustained trend in labor data. “It’s going to take more than one month of negative employment data for the Fed to change its policy stance,” said Julia Pollak, chief economist at ZipRecruiter.
While today’s mortgages are expensive compared with the 2% interest rates of the pandemic era, experts say rock-bottom rates won’t return unless there’s another severe economic downturn. Though rates could continue to decrease, they aren’t likely to fall much below 6% by the end of 2025.
Expert tips for homebuyers
With the spring homebuying season fast approaching, prospective homebuyers are left wondering whether to enter the market or continue waiting on the sidelines. It’s never a good idea to rush into buying a home without establishing a clear budget.
Here’s what experts recommend before purchasing a home:
💰 Build your credit score. Your credit score will help determine whether you qualify for a mortgage and at what interest rate. A credit score of 740 or higher will help you qualify for a lower rate.
💰 Save for a bigger down payment. A larger down payment allows you to take out a smaller mortgage and get a lower interest rate from your lender. If you can afford it, a down payment of at least 20% will also eliminate private mortgage insurance.
💰 Shop for mortgage lenders. Comparing loan offers from multiple mortgage lenders can help you negotiate a better rate. Experts recommend getting at least two to three loan estimates from different lenders.
💰 Consider mortgage points. You can get a lower mortgage rate by buying mortgage points, with each point costing 1% of the total loan amount. One mortgage point equals a 0.25% decrease in your mortgage rate.
More on today’s housing market
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