July Mortgage Rate Forecast: Buyers Retreat as Rates Rebound

Every time the average 30-year fixed mortgage rate dips, even by a few tenths of a percentage point, prospective homebuyers jump to take advantage. As soon as rates move up again, mortgage activity goes down. The past few weeks offer a textbook example. 

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When rates fell to around 6.7% (the lowest level in months) in early July, applications for home loans promptly ticked up, according to the Mortgage Bankers Association. But when the average 30-year fixed rate jumped to around 6.8% last week, mortgage activity plummeted 10%.

“Purchase applications remained sensitive to both the uncertain economic outlook and the volatility in rates,” said Joel Kan, the MBA’s vice president and deputy chief economist, in a statement. 

The key to understanding mortgage rate movement is by looking at inflation and labor data and how that affects the bond market. Mortgage interest rates are closely tied to the 10-year Treasury. Bond market investors drive yields (rates) higher or lower based on their expectations for inflation, unemployment, Federal Reserve policy decisions and government debt. 

Last month’s surprisingly low unemployment rate reduced the probability of an interest rate cut by the Fed this summer. “The headline labor market data isn’t crashing and burning, which likely gives the Fed some cover to hold rates where they are,” said Alex Thomas, senior analyst at John Burns Research and Consulting. While the Fed doesn’t have direct control over the mortgage market, its monetary policy guides mortgage lenders and the general direction of interest rates.

Experts say average 30-year fixed mortgage rates are likely to stay above 6.5% in the coming months, with a potential for small and temporary dips, not substantial drops. Prospective homebuyers are also contending with a long-standing housing shortage, high home prices and a loss of purchasing power. 

Mortgage rates, which are sensitive to investor speculation and economic data, have been affected by the Trump administration’s tax cuts and tariff policies. If tariffs end up raising prices as expected, that would send an even clearer “wait and see” signal to central bank policymakers, whose primary task is keeping both inflation and unemployment in check. 

“Increased uncertainty about the inflation picture lessens the chances of a cut in rates by the Fed,” said Keith Gumbinger, vice president at HSH.com. “Greater inflation would argue against cutting rates, absent any significant deterioration in labor conditions.” 

Following signs of cooler inflation in 2024, the Fed cut interest rates three times but has held rates steady throughout 2025. A slowing job market with higher unemployment could still prompt the central bank to reduce borrowing costs this year, eventually helping mortgage rates fall. 

But the most recent jobs report appeared too steady on the surface, according to Odeta Kushi, deputy chief economist at First American Financial Corporation. “For the Fed, this reduces the urgency to cut rates in July. Even a September move may require more definitive evidence that the economy is cooling,” Kushi said. 

Fewer interest rate cuts combined with the recently passed budget bill, which is expected to significantly boost government debt deficits, are likely to keep upward pressure on longer-term bond yields and mortgage rates.

What’s happening in today’s housing market? 

Affordability challenges have kept the housing market frozen for several years. Even as the long-standing housing shortage eases in several local markets and gives those buyers improved negotiating power, the rest remain locked out by steep home prices. The 2025 homebuying season is still on hold, said Kushi.  

Plus, with recession risks still on the horizon, people who are nervous about finances will be more reluctant to take on mortgage loan debt. Prospective buyers waiting for mortgage rates to drop may soon have to adjust to the “higher for longer” rate environment. 

While market forces are out of your control, there are ways to make buying a home slightly more affordable. Last year, nearly half of all homebuyers secured a mortgage rate below 5%, according to Zillow.

Here are some proven strategies that can help you save up to 1.5% on your mortgage rate. 

💰 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.