Mortgage Rates Soar, Housing Market Feels the Crunch as 2024 Ends

The year 2024 closed on a dramatic note for mortgage rates, though not to the advantage of those looking to borrow. For those contemplating buying a home or refinancing in 2025, the outlook remains tough.

As of the last week of December, specifically December 26, the average rate for a 30-year fixed-rate mortgage stood at 6.85%, according to Freddie Mac. Over the entirety of 2024, this type of mortgage held an average rate of 6.72%, an increase from the 6.81% average in 2023, despite the Federal Reserve lowering its key interest rate three times during the year.

Looking ahead to 2025, the main concern is the future trajectory of these rates.

Experts in the housing sector consistently point to several factors that could keep inflation pressures alive in the near future.

One significant influence is the expected fiscal policies from President-elect Donald Trump. Lisa Sturtevant, Chief Economist at Bright MLS, commented post-election in November, “Bond yields are on the rise as investors anticipate that Trump’s fiscal strategies could expand the federal deficit and backtrack on controlling inflation.”

The day following the Fed’s final rate cut of the year on December 19, 2024, Torsten Slok of Apollo Global Management highlighted in a client memo, “The robust economy, coupled with prospects of reduced taxes, increased tariffs, and immigration limitations, elevates the likelihood that the Fed might need to increase rates in 2025. We estimate a 40% chance of a rate hike by the Fed next year.”

Slok also warned that 2025 could mirror the conditions of 2022: excessively high inflation, increasing interest rates, and declining stock markets.

However, the housing sector didn’t fare disastrously in 2022. That year saw 503,000 previously-owned homes change hands, compared to 409,000 in 2023, with similar numbers anticipated for this year. A notable change has been in home prices. In 2022, the median home sale price was $392,800, while in November 2024, it reached $406,000. The question remains whether home prices will need to slightly decrease to revitalize sales, especially if rates stay high.

Unfortunately, analysts don’t foresee a drop in prices. Sheharyar Bokhari, Senior Economist at Redfin, explains in a recent report, “High mortgage rates will likely lead many homeowners to retain their properties, benefiting from the low rates they have secured. This will result in a limited number of homes available for sale, keeping the competition among buyers alive and pushing prices upward consistently.”