Mortgage rates showed signs of potentially easing in February after encountering a peak in January. The rate for a 30-year fixed mortgage briefly crossed the 7% mark before retreating slightly. By the end of January, it hovered just below this threshold, indicating minimal fluctuations as we transitioned into February.
The trajectory of mortgage rates is closely intertwined with inflation trends. Investors, keeping an eye on the Federal Reserve’s fight against inflation, have seen rates take a downward route marked by volatility over the past couple of years. If the Fed is seen to be making headway in controlling inflation, it’s likely that we’ll see mortgage rates easing.
### What Could Influence Rates to Rise
It’s important to note that the current stance of mortgage rates isn’t set in stone; economic developments could reverse their downward trend. If the economy exhibits signs of strength, particularly through unexpected inflationary pressures or robust hiring numbers, investors might react by driving up mortgage rates to account for growing price risks.
Key data releases in February could shed light on these developments. The January employment report, expected on February 7, could push rates higher if it reveals stronger-than-anticipated job growth. Additionally, the consumer price index for January, scheduled for February 12, is another critical indicator. A higher-than-expected CPI reading could also spur an increase in mortgage rates, considering forecasts are anticipating core CPI should dip to 3.1% from December’s 3.2%.
There’s further unpredictability with potential policy changes, such as tariffs from the Trump administration, which would be seen as inflationary by investors and could lead to a rate hike without prior notice.
In light of these uncertainties, maintaining a personal timeline for securing a mortgage is advisable. The Federal Reserve’s decision to keep short-term interest rates unchanged underscores their wait-and-see approach toward policy changes affecting tariffs, immigration, fiscal plans, and regulations, as articulated by Chair Jerome Powell.
Given this ambiguity, postponing mortgage plans on mere expectations of falling rates may not be wise, especially considering the unpredictability inherent under the current administration.
### Insights from Other Forecasts
Industry forecasts from groups such as the Mortgage Bankers Association and Fannie Mae anticipate that the average 30-year mortgage rate will stay around 6.7% or higher through the first quarter of 2025. January ended with the average rate just under 7%, suggesting a stable outlook with potential slight declines.
Freddie Mac, another significant player, shares a similar sentiment. While there was considerable hope for rate drops last year, the prevailing outlook for early 2025 is one of sustained higher rates. Freddie Mac also notes a discernible impatience among those in the housing market—both buyers and sellers—who paused activity last year hoping for lower rates, indicating they might act in the current landscape.
### Impact on the Housing Market
Rising mortgage rates have taken a toll on homebuyers’ budgets, leading to more cautious purchasing behaviors and extended time on the market for homes. This has gradually increased the inventory of homes for sale. The National Association of Realtors reported 1.15 million existing homes on the market at December’s close, up by 160,000 from the previous year.
While one might expect larger inventories to restrain price growth, demand has kept prices buoyant. The median price of an existing home hit $404,400 in December, marking a 6% year-over-year increase—the highest since October 2022.
This uptick in prices is indicative of strong housing demand. With the current pace of sales, a 3.3-month supply is deemed low, suggesting persistent tight market conditions that Lawrence Yun, NAR’s chief economist, argues is keeping pressure on home prices to rise.
### Reflections on January Predictions
At the beginning of January, my perspective was that mortgage rates would decline by month’s end as they had surged in late December—often a preliminary move before settling back down, or so I speculated. However, reality diverged from my predictions. The average rate for 30-year mortgages mostly stayed above 6.9%, with occasional spikes just over the 7% mark.
