What’s the outlook for mortgage loan officers in 2025? Experts predict the Fed will make a series of rate cuts, but those actions may not lower mortgage costs substantially.
The authors of Arch MI’s weekly HaMMRSM Digest — Arch Chief Global Economist Parker Ross and Assistant Vice President of Global Real Estate Economics Leonidas Mourelatos — expect the Fed to reduce rates up to four times in 2025, following a cut of 25 basis points (BPS) predicted for the Fed’s Dec. 18 meeting.
Lowering the Federal Funds Rate lessens short-term borrowing costs for lenders, but mortgage rates are also influenced by long-term bond yields, market conditions and lender risk assessments. Next year brings a lot of policy uncertainty with the incoming Trump administration that will undoubtedly provide volatility to the economic and rate outlook. It will be important for forecasters – including yours truly at Arch – to stay nimble and be ready to adjust and relay important changes to industry stakeholders as 2025 progresses.
2025 Challenges
“With mortgage rates unlikely to move meaningfully lower in the near-term, (home) sales are likely to remain choppy around a historically slow pace” in 2025, Ross and Mourelatos said in HaMMR Digest’s Dec. 9 issue. “Housing momentum is unlikely to gather much steam without lower rates.”
Other forecasters present a similar picture of the coming year:
- Fannie Mae’s November Housing Forecast estimates the average 30-year fixed rate will be 6.5% at the beginning of 2025, declining to 6.1% in the second quarter of 2026.
- The National Association of Realtors® (NAR®) Chief Economist Lawrence Yun says existing home sales in 2025 will rise 9% year-over-year, and new home sales will jump by 11%.
- The Mortgage Bankers Association (MBA) expects home price growth to slow from a 3.8% increase during 2024 to 1.5% in 2025 and 2026.
- Realtor.com recently reported builders are expected to construct about 1.1 million new homes over the next year, a 13.8% increase from 2024.
New Normal?
“Maybe the worst is coming to an end,” Yun said in a NAR’s November update. “Are we going to go back to 4%? Per my forecast, unfortunately, we will not. It’s more likely that we’ll go back to 6%. That will be the new normal, bouncing around 5.5%-6.5%.”
MBA analysts say inflation seems to be cooling, which could help ease borrowing costs and give prospective buyers some much-needed relief. Strong job growth and low unemployment should also boost buyer confidence. Still, affordability challenges and high mortgage rates mean sales volumes will likely stay lower than the historical norm, even with these positive trends.
In early December, Fannie Mae released the results of a survey of one hundred housing experts who expect existing-home sales to remain sluggish for another year and new-home sales to trend slightly upward. About 80% of the respondents to the Fannie Mae poll believe home price growth will slow next year thanks to the likelihood of persistently high mortgage rates and a jump in for-sale inventory.
Lock-In Effect
Existing home sales are projected to remain limited by the “lock-in effect,” where homeowners with historically low mortgage rates are hesitant to sell and take on higher-rate loans.
MBA’s cautiously optimistic view includes a prediction that lower rates later in 2025 will spur refinancing activity, although early 2025 will still see subdued levels due to rate volatility.
NAR emphasizes that the inventory shortage remains a significant barrier to market recovery. To address this structural supply gap, the association calls for targeted measures, such as zoning reforms and incentives for new construction.
NAR officials say elevated borrowing costs will likely push buyers toward smaller, more affordable homes, further straining an already tight inventory of entry-level properties.
Prepare for Economic Shifts
Of course, mortgage conditions over the next few months will likely shift with the interplay of economic forces and shifting market dynamics. For mortgage loan officers and industry professionals, staying informed is critical. Reliable resources like Arch MI’s weekly HaMMRSM Digest provide the latest data on home sales, mortgage trends and key business indicators to provide mortgage loan officers with actionable insights to navigate a changing housing landscape. Arch MI’s economics team also presents a Quarterly Housing Update — a live webinar providing insights and analysis on the latest data focused on important questions for mortgage loan originators while diving deeper into regional housing dynamics.
How are you preparing for 2025? Share your strategies with us, and we’ll include your feedback in future issues of Arch MI’s Insights blog.