Homebuyers have faced an unpredictable housing market over the past few years. Surging home prices and high mortgage rates have priced many buyers out, while sellers have held off listing properties in the hopes that market conditions will improve.
The lack of affordable housing options for first-time buyers has weakened demand, deterring sellers and compounding the housing market's stagnation.
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Though economists initially expected mortgage rates to ease alongside several rounds of interest rate cuts from the Fed last year, ongoing economic uncertainty and market volatility have kept rates elevated.
Mortgage rates are now expected to close out 2025 at similar levels as 2024, delaying the highly anticipated housing market rebound. Without mortgage or home prices falling considerably, homeownership will become increasingly out of reach.
In its mid-year forecast, Realtor.com notes that homebuyers will continue to see the impact of years of stubborn mortgage rates through the end of the year.
Mortgage rates have been stubborn, but may show improvement by the end of 2025
Average 30-year fixed mortgage rates dropped to 6.58% this week, reaching their lowest level in 2025. While this is a welcome improvement from the nearly 7% rates in May, it is not the change many homebuyers have been waiting for.
However, there may be positive changes on the horizon.
In its Mid-year Housing Forecast, Realtor.com economists project that mortgage rates will dip to around 6.4% by the end of the year, though annual averages will remain high.
“We expect moderating growth and relatively contained inflation pressures to win out and help mortgage rates edge lower in the back half of 2025. The protracted decline from a higher starting point will mean that the annual average mortgage rate matches what we saw in 2024 (6.7%) even as the rate moves just into the lower-6s (6.4%) by the end of 2025.”
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In addition to reigniting homebuyer demand and encourage housing activity, even modest mortgage rate reductions translate to tangibly lower housing costs for homebuyers.
“A drop just over a quarter percentage point sounds small, and relative to the ground mortgage rates have covered in the past few years, it is. At the same time, this decline would mean real savings for potential home shoppers,” the report continued.
The Realtor.com team highlights that a 0.3% mortgage rate drop would equate to nearly $1,000 in annual savings on a mortgage for a median-priced home.
“On a $350,000 loan, which is roughly 80% of today’s $440,950 median-priced home listing, a decline from 6.7% to 6.4% means monthly payment savings of nearly $70, or roughly $830 per year.”
Despite mortgage rate progress, housing sales and homeownership rates will continue to drop
Mortgage rates are often seen as the main detriment of housing market health, but it is only part of the equation.
The combination of skyrocketing cost of living, stagnated wages, and lack of affordable housing inventory is also holding the housing market back, and may continue to do so until those factors are addressed.
The Realtor.com economists highlight that many homebuyers are balancing competing financial obligations, discouraging many from attempting to buy a home. This lack of opportunity will bring the homeownership rate down to concerning levels not seen since 2019.
“In the grand scheme, housing still costs too much for many to feel like they have a fair shot at attaining homeownership. We’re starting to see this in slipping homeownership rates, which we project to ebb to 65.3%.”
Millennial and Gen Z buyers feel the brunt of the affordability crisis, as many are balancing student loan payments, a challenging job market, and historically high rents, on top of trying to save for a down payment.
“If we look at homeownership rates for younger households, we see a starker decline. The lack of access for those individuals will likely shape financial prospects for them and their families for decades to come.”
Related: Zillow CEO sounds alarm on worrying trend rattling housing market
