The long-range forecast for mortgage rates has dimmed in recent months, but stability has returned to the market more recently as rates are slowly creeping back down toward 7%.
Still, all types of prospective homebuyers — whether they’re a Gen Z worker searching for a starter home, a millennial looking for more space or a small investor seeking their next source of income — are dealing with the same set of circumstances as they mull a purchase. These headwinds include higher home prices, a relative lack of listings to choose from and even the prospect of higher inflation fueled by tariffs.
Data at HousingWire’s Mortgage Rates Center on Tuesday shows that 30-year fixed-rate loans are averaging 7.07%, down 3 basis points (bps) from a week ago, while 15-year fixed-rate loans are averaging 7.23%, down 9 bps.
Inflation has dropped significantly since reaching a 40-year high mark of 9.1% in June 2022. But isn’t hasn’t found its way back to the Federal Reserve’s target of 2% annualized growth. And Alex Hampton, the president of capital markets for Virginia-headquartered Atlantic Bay Mortgage Group, thinks the Fed signaled renewed concerns about inflation by removing a brief mention of the 2% target from its post-meeting statement two weeks ago.
“The Fed did not go too far off the script of being data dependent, but the missing ‘inflation is coming back down toward the 2% target’ (statement) at the last meeting gives the feeling that inflation is still too sticky to keep saying, especially with the uncertainty of the new administration’s tariffs,” Hampton told HousingWire in an email.
Sam Williamson, senior economist at First American, said in commentary last week that the Fed’s approach is unlikely to change after the January jobs report. Employers added 143,000 jobs last month, a number that was slightly below projections but still high enough to strengthen perceptions that the economy is healthy.
“January’s mixed report reinforces the Federal Reserve’s cautious approach as 2025 gets underway,” Williamson said. “The Fed has emphasized the need for either ‘real’ inflation progress or ‘some’ labor market weakness before delivering additional rate cuts and the January jobs report provided neither, likely keeping rate cuts off the table until May/June at the earliest.”
Interest rate traders agree. According to the CME Group’s FedWatch tool, the odds for a rate cut at the Fed’s next two meetings have gotten longer. As of Tuesday, only 5% of traders anticipate a 25-bps cut in March (down from 30% in late January), while 22% expect one in May (down from 42% two weeks ago).
Tariffs have taken center stage during the first month of President Donald Trump’s return to the White House. Trump announced tariffs of 25% on imported goods from Canada and Mexico — along with a 10% tariff on Chinese goods — but reversed course soon after by delaying action against the U.S.’s neighbors for a month. On Monday, the president said that 25% tariffs on all steel and aluminum imports would go into effect March 12.
U.S. homebuilders have voiced their opposition to the tariffs as many construction inputs come from Canada and Mexico. Increased costs for these materials are likely to be passed on to consumers in the form of higher home prices.
CoreLogic data shows that the tariffs, if fully implemented, could add 4% to 6% to the price of a new home over the next 12 months. This equates to an additional $17,000 to $22,000 on the average new-home price of $422,000.
These additional expenses could put a damper on new-home sales, which have been outperforming existing-home sales for a while. And it could lead to fewer incentives from builders if they seek to cut costs in other areas to deal with higher-priced materials.
“With rates at their current levels, builders are having to offer seller paid incentives to get future homebuyers off the fence, whether it is through temporary buydowns, or paying for a much lower rate through a builder forward program. This could allow for home prices to remain the same, but it is still cutting into the builder’s profits,” Hampton said.
The ongoing struggles with supply and affordability in the retail housing market are also being felt in the foreclosure market, where many small investors find cheaper homes to buy, rehab and resell for a profit. Auction.com recently reported that foreclosure-auction sales in 2025 are expected to decline by 8% and finish at the second-lowest level on record, aside from 2021 when pandemic-driven foreclosure moratoriums were in effect.
Steve Choe, the head of sales at Los Angeles-based investment lender Dunmor, said that shrinking foreclosure supply has intensified competition among real estate investors.
“As a result, properties at auction are selling for higher prices, reducing the profit margins that house flippers and value-driven buyers once relied on,” Choe said in written commentary. “This trend has contributed to overall market stability, as the absence of a flood of distressed sales helps maintain home values. However, for buyers seeking affordable investment opportunities, the shrinking pool of foreclosure auctions means they must explore alternative acquisition strategies.”
