Will Mortgage Interest Rates Go Up?

U.S. mortgage rates keep rising, even as the Federal Reserve cuts interest rates and eases monetary policy conditions. Will mortgage interest rates go up in 2025?

According to Freddie Mac’s latest Primary Mortgage Market Survey (PMMS), the average 30-year fixed-rate mortgage topped seven percent for the first time since May.

The Mortgage Bankers Association (MBA) weekly survey, a market alternative, showed that the 30-year fixed-rate mortgage climbed to an eight-month high of 7.09 percent.

This increase has coincided with rising U.S. Treasury yields. Over the last three months, yields on government bonds have surged to their highest levels since the middle of spring.

The benchmark ten-year yield has soared more than 100 basis points to about 4.6 percent, though it has flirted with the 5 percent mark, especially after the gangbusters December jobs report.

Market watchers have attributed these developments to various causes, whether a strengthening U.S. economy or fiscal policy concerns.

Indeed, an excess of data suggests that the world’s largest economy is still growing. The Federal Reserve Bank of Atlanta’s GDPNow model points to three percent growth in the fourth quarter, while the New York Fed’s Staff Nowcasting estimate suggests three percent growth in the first quarter of 2025.

At the same time, investors are worried about President Donald Trump’s economic agenda, which could add to ballooning budget deficits and force the federal government to accelerate borrowing.

Meanwhile, the futures market is penciling in higher for longer interest rates as the U.S. central bank contends with sticky and stubborn inflation. Since the Fed kicked off its rate-cutting cycle, inflation has risen every month, reaching 2.9 percent in December.

“Bond yields in the U.S. and abroad continued to move higher in response to concerns over a sticky inflation outlook and still too-high budget deficits, which pushed mortgage rates higher for the fifth consecutive week,” said Joel Kan, the MBA’s vice president and deputy chief economist, in a report.

Will Mortgage Rates Go Up in 2025?

So, looking ahead through 2025, will mortgage rates go up? The direction of mortgage rates might depend on inflation.

When the December consumer price index (CPI) report aligned with market estimates and core inflation, which excludes the volatile energy and food policies, unexpectedly dipped to 3.2 percent, Treasury yields tanked. Traders were optimistic that this could diminish Fed officials’ inflation fears. Of course, within days, Treasury yields headed upward again.

Banks and independent economists have offered a wide array of projections.

Goldman Sachs, for example, believes annual inflation will reach the central bank’s two percent target in 2025. However, ITR Economics is penciling in 3.2 percent inflation by the year’s end.

Greg McBride, the chief financial analyst at Bankrate, thinks mortgage rates will remain elevated this year.

“The average 30-year fixed mortgage rate will spend most of the year in the 6s, with a short-lived spike above 7 percent, but never getting below 6 percent,” McBride said in a report. “Continued economic growth and worries about inflation and government debt will keep mortgage rates elevated.”

Trump has proposed 10 to 20 percent universal tariffs on all U.S. imports. This, economists say, could reignite inflationary pressures, forcing the Fed to make tough decisions.

That said, Chair Jerome Powell recently told reporters at a post-meeting press conference that he and his colleagues have yet to craft monetary policy strategies because the 47^th president has not officially outlined trade policy. At the same time, minutes from the December Federal Open Market Committee (FOMC) policy meeting suggest that officials are worried about inflation risks emanating from the new administration’s potential economic agenda that could lengthen the entity’s objective of restoring its two percent inflation target.

“Almost all participants judged that upside risks to the inflation outlook had increased,” the minutes said. “As reasons for this judgment, participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy.”

The updated December Summary of Economic Projections signaled that policymakers anticipate just two quarter-point rate cuts this year, down from the September forecast of four.

Despite growing consternation of a higher-for-longer economic climate, Fed Gov. Christopher Waller is optimistic that the central bank will keep cutting interest rates this year.

“I believe that inflation will continue to make progress toward our two percent goal over the medium-term and that further reductions will be appropriate,” Waller said at a recent OECD event.

According to the CME FedWatch Tool, investors think the Fed will delay its next quarter-point rate cut until June or July.