Homebuyers Receive Mortgage Interest Rate Warning

Mortgage rates are probably not going to fall as much as many aspiring homebuyers would hope this year, experts have said. However, they are likely to see a dip in March due to the slowing economy and uncertainty around Donald Trump‘s policies.

“Recent economic data has pointed to a cooling U.S. economy, and bond yields have tumbled to their lowest level in three months,” Melissa Cohn of William Raveis Mortgage said in a statement shared with Bankrate.

“Additional concerns that massive layoffs and spending cuts in the federal government will cause a rapid downshift in economic activity have led many to believe that the economy is about to have the rug pulled out from underneath it, which will cause rates to continue to fall,” Cohn added.

Why It Matters

The U.S. is in the midst of a housing affordability crunch brought about by a historical lack of supply, pent-up demand, rising homeowners insurance premiums and housing fees, climbing prices and high mortgage rates.

While in certain markets that became especially overvalued during the pandemic, prices are now softening, the price tag of a typical home in the U.S. is still rising and mortgage rates are projected to remain between 6 and 7 percent throughout 2025, eroding American buyers’ purchasing power.

What To Know

As of February 27, the 30-year fixed-rate mortgage was at 6.76 percent, according to Freddie Mac, down 0.09 percent from a week before and 0.18 percent from a year earlier. New data to be released on Thursday is expected to show another modest decrease in mortgage rates.

While mortgage rates have come down after hitting the 7-percent mark again in January for the first time since May 2024, it is a far cry from earlier expectations that rates might drop into the 5-percent range this year.

The Fed does not set mortgage rates, but the central bank’s decisions have a strong influence on them. In a statement to Newsweek, Cohn said that, with inflation hovering higher than hoped and the economy slowing down, the Fed is unlikely to lower its benchmark rate during their next meeting on March 19.

“It’s very likely that the economy is slowing down as a result of everything that’s going on, and that the Fed will have a hard decision at their next meeting,” Cohn said. “We know that they’re going to be heavily pressured to cut rates. We know that they don’t pay attention to that pressure, but, if we all of a sudden see weakness, that may force their hand to cut rates before they would like to,” she added.

Mortgage rates could slide down anyway—mainly as a result of the uncertainty surrounding the state of the U.S. economy and the impact of some of Trump’s most-controversial policies. The imposition of tariffs on goods imported from Mexico and Canada—now postponed for a month—could have a negative impact on the U.S. economy, driving up inflation, experts have said.

“From everything I see in Washington, they are working hard to implement new policies and campaign promises, some of which, such as tariffs, can be bad for the economy and inflation,” Cohn said, “even though the goal is for a better, future economy. In the meantime, while those policies are being implemented, they are bad for the economy, and it could lead to rates coming down.”

According to Cohn, bond yields have dropped enough for mortgage rates to come down. “It’s also the beginning of the spring selling season, and it’s the middle of the Southern selling season,” she said. “In some ways, you hope that banks will start to get aggressive because the year didn’t start off with a big bang.”

However, that is as far as good news goes for homebuyers, as experts expect mortgage rates to hover around the 7-percent mark for the rest of the year.

What People Are Saying

Freddie Mac report from Realtor.com Senior Economist Joel Berner read in a statement shared with Newsweek: “We do not anticipate significant relief from high mortgage rates in the near-future because of inflation remaining stubbornly high, which will not be helped by the tariffs that the Trump administration appears committed to rolling out.

“Expectations of higher consumer prices in the future leads debt market investors to demand higher returns on their investments, indirectly pulling interest rates up at the same time that they deter the Federal Reserve from making direct cuts to interest rates.”

Lisa Sturtevant, chief economist at Bright MLS, told Bankrate: “I don’t think we’re going to see mortgage rates fall as everyone hoped. It feels like rates are going to be well in the 6s. But that might not be as big an obstacle as we might have thought. There’s this anchoring going on where buyers and sellers are getting used to 7.”

What Happens Next

While experts expect mortgage rates to float between 6 and 7 percent in 2025 and 2026, there is a lot of uncertainty around the impact of the Trump administration’s policies on the U.S. economy, and how this could impact the Fed’s decisions in the coming months.

Meanwhile, affordability remains an issue in the U.S. housing market. However, sellers holding on to lower-cost mortgages are coming to terms with the fact that they may not get a better deal for a long time, and are now entering the market. While home prices are still rising at the national level, inventory is also growing, offering buyers more options and increasing their negotiating power.

“Modestly improving conditions in home finance are coming at the same time that inventory is up and prices are down, providing some much-needed momentum to the housing market just in time for the start of the spring buying season,” Berner told Newsweek.

“Last year was a particularly slow year for home sales, the slowest since 1996, and first-time homebuyers were largely left out of the 2024 market. Given the fact that rents have been falling year over year for 18 consecutive months, we expect that many prospective first-timers have been able to save up for a down payment and will be able to become homeowners in 2025, even with mortgage rates relatively high,” Berner added.