Inman News
Hopes that home sales will pick up may hinge more on additional inventory coming onto the market, which is expected to cool or reverse home price gains, economists say
After staying stuck in the high sixes for two months, mortgage rates are coming back down as investors seeking certainty pull money out of the stock market and move it into bonds and mortgage-backed securities that fund most home loans.
But there’s no guarantee that the downward move in mortgage rates is sustainable, economists say, and hopes that home sales will pick up may hinge more on additional inventory coming onto the market, which is expected to cool or reverse home price gains.
After popping in April over concerns that the Trump administration’s tariff policies could reignite inflation, mortgage rates have been trending down since May 21.
At 6.67 percent Monday, lender data tracked by Optimal Blue shows rates on 30-year fixed-rate mortgages are down 25 basis points since May 21 and 38 basis points from the 2025 high of 7.05 percent registered on Jan. 14.
A basis point is one hundredth of a percentage point. So rates have come down by 1/4 percentage point in the last five weeks — more than halfway to the 2025 low of 6.48 percent seen on April 4.
“The drop in rates is small but still helpful,” National Association of Realtors Chief Economist Lawrence Yun said in a statement to Inman.
Mortgage rates trending down
Yun noted that 10-year Treasury yields — a barometer for mortgage rates — have made a similar downward move, and pointed out a few key reasons behind the trend.
“First, there is an improved prospect of tariff negotiations,” Yun said. “Second, the likelihood of a Fed rate cut in September — or possibly even sooner — has increased, with two voting members publicly stating support for a July rate cut. Finally, actual inflation is calmer than forecasted in April and May, helped by decelerating shelter costs.”
Although the Trump administration has been putting the heat on Federal Reserve Chair Jerome Powell to lower short-term interest rates, mortgage rates are determined largely by investor demand for mortgage-backed securities (MBS).
When the prospects for economic growth look precarious, investors pile into MBS and government bonds seeking safe returns. More demand for bonds and MBS drives up their prices and brings down their yields.
But when inflation looks like a potential threat to their returns, investors will demand higher yields — driving up borrowing costs for homebuyers.
When the Fed cut short-term rates three times at the end of last year by a full percentage point, mortgage rates went up as investors weighed incoming data showing inflation moving away from the central bank’s 2 percent goal.
Where interest rates are headed next depends in large part on the outcome of ongoing tariff negotiations and Congress’ tax and spending policies, and forecasting mortgage rates can be a tricky business.
But in their latest forecast, economists at the Mortgage Bankers Association on June 20 predicted rates for 30-year fixed rate loans will end the year about where they are now — at 6.7 percent.
Mortgage rates forecast to stabilize
Source: Fannie Mae and Mortgage Bankers Association forecasts, June 2025.
The MBA sees mortgage rates coming down only gradually next year, to 6.4 percent by Q4.
A June 12 forecast by Fannie Mae economists was slightly more optimistic, predicting rates will drop to 6.5 percent by Q4 2025 and to 6.1 percent by the end of next year.
MBA economist Edward Seiler, the executive director of the Research Institute for Housing America (RIHA), told Inman that cooling home price appreciation is likely to have a bigger impact on affordability than mortgage rates.
Home price appreciation expected to cool
Source: Forecasts by Fannie Mae (April 2025) and Mortgage Bankers Association (June 2025).
Fannie Mae’s home price appreciation forecast is published quarterly, and hasn’t been updated since April.
MBA forecasters in June predicted that national home price appreciation will cool to 1.3 percent by the end of this year, and to 0.3 percent by Q4 2026.
Since the MBA’s forecast also predicts that inflation will swell to 3.2 percent by the end of next year, that implies national home price growth will be negative in real terms.
Price declines are expected in markets where inventory is coming online faster than houses are sold.
Among the 20 largest housing markets tracked by the S&P CoreLogic Case-Shiller Index, two saw year-over-year declines in April — Tampa (-2.2 percent) and Dallas (-0.2 percent).
“The underlying market dynamics remain challenging but not dire,” S&P Down Jones Indices analyst Nicholas Godec said in a statement.
Elevated mortgage rates are keeping monthly payment burdens near generational highs, and the mortgage lock-in effect continues to constrain housing supply, he said.
The supply-demand imbalance “continues to provide a price floor, preventing the sharp [price] corrections that some had feared.”
It’s a market in transition, Godec said, where “local fundamentals matter more than national trends.”
Housing and mortgage experts polled by Fannie Mae in May saw Austin, Tampa, Dallas, Denver, Houston, Miami, Phoenix, Washington, D.C., and Atlanta as markets where home prices are most likely to underperform national home price appreciation over the next 12 months.
Among the 20 largest U.S. housing markets, Boston, New York, Philadelphia, Nashville and San Diego were viewed as places where prices are most likely to go up faster than the national average.