The more things change, the more they stay the same. Witness:
That right there is a two-year graph of average mortgage interest rates, with data from Freddie Mac. The type is probably too small to read so I’ll help: over the last two years the number has not been lower than 6.08% or higher than 7.79%. Right now it’s around 7%, which is going to be right about average for the past two years.
If you ask me to predict the future I’ll throw caution to the wind and do it. While I think over the next twelve months we’ll see some downward pressure on rates, I don’t think it’s going to be meaningful. There isn’t much of a case to support a real drop in rates. This, in the near term, seems to be the new normal. My hunch is that we end 2025 with a 6 in front of the percent sign instead of a 7, but it won’t be a 5 like everyone wants.
Here’s another thing I think though, which is more encouraging: we’ve (probably, hopefully) bottomed out on home sales.
While home sales in our area dropped about 25% from 2022 to 2023, they ticked just barely back up in 2024 (about 2%). That’s a pretty strong indication that we’ve seen the worst of it, and that buyers and sellers have adjusted to the current environment. The same goes for new listings:
My bold prediction for 2025 is that we see incremental increases to both new listings and closed sales. More sellers– who have been trapped by the lock-in effect of having low rates on their mortgages– will choose to sell, and more buyers who have been waiting on the sidelines will see this inventory and find more attractive options. Not by a lot though, I don’t see this as a rapid recovery. Buyers will be opportunistic and jump in on weeks when rates dip (I could make a graph for that based on the past year as it does happen, but I’m graphed out), and we’ll see those momentary spikes in pending sales. And I’m sure I’ve said this before, but if we get to a time in which rates sustain themselves in the high 5’s/low 6’s, we’ll see a real, very noticeable change to new listings and pending sales.
As for prices? It’s not a guarantee that lower rates will bring higher prices. It may be counterintuitive, but the chance exists that lower rates– by bringing a lot of new inventory on the market, remember the lock-in effect– actually lowers prices. I wouldn’t count on it though, since all indications are that there are just as many buyers waiting “this” (whatever their definition of “this” is) out as sellers. Supply and demand are pretty balanced right now and likely will continue to be, even if at higher numbers.
There you have it. Twelve months from now I’ll either come back with a “told ya so!” or I’ll quietly delete this post.
