Mortgage and Real Estate Forecasts for 2025: Where Do We Go From Here?

1. Mortgage rates will drop to 5S at some point

I always start my New Year’s predictions post by guessing which direction mortgage rates will go.

Mortgage rates and nearly so are very difficult to predict no one He gets it right. But we can make some educated guesses based on what we know.

What makes 2025 even more complicated is the presence of a new presidential administration incoming. And not just a second term, but a second term for Donald Trump.

This time, he promised some sweeping changes, including broad tariffs, mass deportations, and big tax cuts.

These three factors lead to higher inflation rates, which the Federal Reserve has been fighting since at least early 2022.

They have made a lot of progress, but there are concerns that Trump’s policies will quickly undo that progress.

That’s partly why 10-year bond yields, which are used to set mortgage interest rates, have risen so much recently despite three separate interest rate cuts by the Federal Reserve.

However, there is also rising unemployment and recession fears, which could undo some of Trump’s inflationary policies.

There’s also the idea that he might not actually do what he said he would do. For me, the economic data will be more important and I see the economy slowing down and starting to struggle.

This is obviously not good news for the economy, but it could be good news for mortgage rates.

As in years past, they will not move in a straight line down, but I think they will be lower in 2025 than they were in 2024, with a 5 handle a real possibility.

Just expect a lot of volatility along the way and act quickly if you need to lock in your price!

Read more: Mortgage rate forecasts 2025

2. Second mortgages will become more popular as consumers need cash

While second mortgages have gained popularity in recent years, largely because first mortgages have been holding at very low levels, they have yet to have their moment.

And by the moment I mean when everyone and their mothers get a home equity loan or home equity line of credit (HELOC).

That moment could come in 2025 for a few different reasons. On the one hand, current homeowners hold standard home equity with very low loan-to-value ratios (LTVs).

Second, they have exhausted their excess savings and will want (or need) to keep spending. These mortgages will allow them to do that.

Finally, loan providers focus on existing homeowners in their portfolios and will offer them the products mentioned, knowing that a first mortgage is not an option for most people.

Mortgage lenders may need to do this to survive if mortgage rates remain stubbornly high and prevent them from generating enough purchase and refinancing volume to keep the doors open.

So, if you are a homeowner, expect to be offered one of these loans.

If you are an economist, keep an eye on this type of lending. If it becomes rampant, we will have a riskier housing market with more leverage and debt, and potentially stabilizing home prices.

advice: Three main differences between HELOCs and home equity loans

3. Refinancing will gain steam as interest rates fall and lenders swoop in

Mortgage lenders were anxiously awaiting lower mortgage rates. They may want to take a breath because it seems like it will take forever.

While we had a nice interest rate deferment in August and September, interest rates have risen again and are now closer to 7% again.

But if it drops to 6% in 2025, or even in five years, there will be a big boom in refinancing.

People keep throwing around the phrase “mini-refinancing boom” because it will pale in comparison to the rate of the forward refinancing boom we saw from 2020-2021.

However, it will still be a highly emotional event for loan officers, mortgage brokers and lenders trying to drum up business.

A recent report from iEmergent said refinancing volume is expected to rise another 40% in 2025 after rising about 50% from 2023.

About five million refinancing requests depend on mortgage rates falling to about 5.5%.

Therefore, interest rates could make or break the mortgage market next year and will be very important to monitor.

4. Recovery will be the name of the game for new mortgage originations

If you haven’t heard of Restoration, you will. It has become all the rage in the mortgage world.

Instead of searching for new customers, lenders and loan servicers simply scan their existing customer database to find new business prospects.

Thanks to improved technology, this process can be automated so that anyone is alerted in their Rolodex if they could benefit from refinancing or adding a second mortgage.

In September, the nation’s largest bank, UWM, launched the KEEP program to help its brokers retain their clients, even if the rights to service those loans fall to another company.

This trend was driven in part by a lack of new business there, forcing loan originators to go back and work with what they had.

If you’re a homeowner, don’t be surprised if a lender contacts you before you contact them.

Even if their offer sounds great, always take the time to compare their offers with competing brokers and lenders.

5. Home sales will bounce off the bottom but won’t improve as much as people think

There has been a lot of optimism that 2025 could be the start of a year of much higher home sales with those on the fence finally jumping in.

The idea is that consumers are accustomed to higher mortgage rates by now and are tired of waiting.

It’s a good idea, but once many of these people crunch the numbers, they may balk at it, even if they want to buy a house.

Property tax and homeowners insurance rates, coupled with a high mortgage rate and a still-high asking price, may not be reasonable.

It is still unclear whether we will exceed four million existing home sales for 2024, which could be the bottom for sales this cycle.

But it is possible that 2025 will see sales above the four million threshold, but perhaps not by a large margin.

In other words, 2024 will likely be rock bottom for sales, and 2025 will be a little better, but not much better. As shown in the chart above realtor.

Of course, surprises are always possible, and if there is truly pent-up demand from impatient buyers, it could be better than expected.

6. Home price gains will be weak despite improved prices

While I expect mortgage rates to continue their downward trajectory into the new year, I do not expect this to be associated with greater gains in home prices.

While 2024 will likely see home prices rise more than 5% again, 2025 will likely see a continued deterioration in the rate of appreciation.

In other words, we expect home prices to rise again in 2025, but only by 2% to 3% instead of 5%.

In short, real estate is expensive! There is no way to sugarcoat it anymore, and with supply increasing and there not being a large number of buyers, we expect prices to fall.

This will vary by region, with the weather expected to be cold again in states like Florida and Texas, where the Northeast and Midwest may outperform.

Either way, I wouldn’t count on a big price hike as values ​​look pretty superior these days in most areas.

For homebuyers, this can be a plus if the seller is more willing to negotiate or offer seller concessions.

They may also be more willing to pay your agent’s commission as well!

7. Real estate agent commissions will decrease with more negotiation

I hope we get more clarity on the ongoing real estate agent commission drama that unfolded in late 2024.

The new rules do not allow compensation offers on the MLS and no longer guarantee that the seller or listing agent will cover the buyer’s agent compensation.

As such, the buyer has to pay the invoice or needs to negotiate with the seller to pay it. Note that real estate commissions cannot be funded directly.

Since it is no longer a certainty, I expect commissions to decline further in 2025, although this will depend on the transaction in question.

Simply put, if the home is in lower demand, the seller may be willing to offer the full 2.5% or 3% to the buyer’s agent to move it quickly.

Conversely, if the property is popular with multiple bidders, the buyer may need to foot the bill and negotiate a lower commission with their agent.

This may entail telling their agent that they can only pay 2% or 1.5%. The key is that it must be negotiated in advance.

Your strategy as a homebuyer might be to offer your agent the full 2.5%, but tell them if the seller is only offering X, that’s all they’ll get. You will not make up the difference!

Read more: It’s okay to negotiate with your real estate agent!

8. More real estate/mortgage companies will adopt the vertical model

We’ve seen more companies trying to do it all in the real estate/mortgage space, and we’ll likely see more of them in 2025, especially if there’s a friendlier regulatory climate.

For example, Zillow isn’t content with just being a portal where you can look up your Zestimate.

They also want your home loan, as evidenced by the big hiring spree in their Zillow Home Loans unit.

Other lenders continue to integrate their settlement services in-house, or launch real estate agent referral systems.

Simply put, companies want to get a bigger piece of the overall deal, rather than just the loan, the dealer piece, or the title and security.

The same has happened with home builders, where the builder’s lender often outperforms the competition on the mortgage as well.

Builders want more control over the process to ensure the loan gets to the finish line. They can also make more money this way as well. Winning.

But again, make sure that you as a consumer also profit and are not just paying more for the convenience of one-stop shopping.

9. Your FHA payments will be lowered (and perhaps your loan life policies too!)

Here’s one prediction that could make home ownership a little easier. I expect the FHA to lower premiums in 2025.

And maybe do something about the annoying life-of-loan insurance policy, as mortgage insurance can never be cancelled, even with a very low LTV.

FHA Mutual Mortgage Insurance Fund (MMI Fund) is very well capitalized, and a reduction in insurance premiums is now justified due to having reserves in excess of the minimum required reserves.

And while Trump held back the FHA cut during his first term because he wanted to reduce the government’s footprint in mortgages, I don’t think he will oppose this time.

He knows that housing is Americans’ top priority and he will want to make it cheaper for them. This could be an easy way to do that and get a quick win himself.

Cutting FHA mortgage insurance premiums by 25 basis points probably won’t make or break many deals, but every little helps. Perhaps the upfront premium can also be reduced.

If the loan term policy were removed, it would be a huge boon for current FHA holders, assuming they can stop paying the costly premiums.

Stay tuned for this one!

10. Fannie and Freddie will remain in conservatorship

Finally, despite much recent grumbling, as happened eight years ago when Trump was first elected, I do not expect Fannie Mae and Freddie Mac to be released.

While it’s probably a good idea and something like that He should This had to be done, since they were under government guardianship Since 2008I don’t see that happening.

We’ve already seen a fair amount of backlash, with some people claiming that mortgage interest rates would have been higher without the government guarantee from Fannie and Freddie.

We’re also in a fragile part of the cycle where home prices are through the roof and affordability is historically very poor.

Tinkering with your mortgage financing backbone can be unwise in terms of timing. Once again, Trump will want the lowest possible mortgage interest rates in America.

So risking Fannie and Freddie being released back into the wild seems like a risky endeavor.

But again, anything is possible and I don’t expect 2025 to be a quiet year without surprises by any means.

So you may want to buckle up and prepare for the worst, but hope for the best. And be vigilant if you’re buying a home, selling a home, or getting a mortgage!