As the new year begins, the housing market is seeing some worrying changes. Mortgage rates have surged to 6.91% for the average 30-year fixed loan, hitting their highest point in nearly six months, up from 6.85% last week.
This comes at a time when pending home sales are unexpectedly on the rise. What does this mean for both homebuyers and sellers in 2025?
Rising Rates, But More Buyers Are Stepping In
As mortgage rates inch closer to 7%, Freddie Mac’s chief economist, Sam Khater, sees a silver lining. Even with the challenges higher rates bring, more buyers are jumping into the market. Buyers seem more willing to take action, Khater says, pointing to the jump in pending home sales as a rosy sign.
Mortgage rates, now hovering just under 7%, are at their highest since early July 2024. Compared with the start of the year, they’ve soared nearly 30 basis points. A recent rise in the 10-year Treasury yield, which hit 4.63% after the Federal Reserve’s December meeting, is one of the reasons for the increase.
Joel Berner, a senior economist with Realtor.com®, says the Fed’s cautious approach to rate cuts hinted in 2025 has kept long-term bond yields—and mortgage rates—on the higher side.
He says the effects of post-pandemic inflation are still lingering, and mortgage rates are stuck near 7%, putting extra pressure on the housing market.
A Sluggish Market in December
December 2024 brought the strongest seasonal slowdown in the residential real estate market in nearly two years. Homes sat on the market longer with an average of 70 days before selling, compared with 62 days in November.
The slowdown can be attributed to a combination of rising mortgage rates, limited home inventory, and high listing prices, which kept many would-be buyers from entering the market during the holiday season.
What is more, the “lock-in effect” has kept homeowners from listing their properties. Many homeowners are reluctant to sell their current homes owing to the high mortgage rates they would face when purchasing a new home. This has caused a big drop of 8.6% in listings from November, the largest slump since January 2023.
As a result, December became the slowest December for the housing market since 2019, with fewer homes listed and less activity from buyers and sellers.
What’s in Store for 2025?
According to Realtor. com®’s economic research team, mortgage rates are expected to average around 6.3% throughout the year, before dipping to roughly 6.2% by the end of 2024. This could help inject some life into the sluggish market by enticing hesitant homeowners to list their properties.
Economists predict that as rates begin to tumble, the market could see an increase in inventory, which would give buyers more options and perhaps spark greater competition among sellers. This in turn could lead to a healthy supply of homes for sale and more opportunities for buyers.
A New Normal for Buyers
Despite boosted mortgage costs and affordability issues, there are signs that the housing market is adjusting. Recent data on pending home sales, new-home sales and existing-home sales show growth compared with last year, suggesting buyers are starting to accept higher rates as “the new normal.”
For those looking to buy a home in 2025, there’s hope for more options. Berner says that even if mortgages remain expensive, buyers will likely have more choices.
