Mortgage Rates Remain Steady Despite Economic Uncertainty
The housing market has been surprisingly calm in recent months, with mortgage rates hovering around 6.8% and 7% since the spring. This stability is unusual, given the political and economic volatility that can impact the market.
Current State of Mortgage Rates
Mortgage rates were expected to decline gradually in 2025, but the Trump administration’s inflationary tariffs, deficit spending, and geopolitical maneuvering have led to bleaker forecasts. The Mortgage Bankers Association now predicts that mortgage rates will decrease only slightly to 6.7% by the end of the year. According to Beth Ann Bovino, chief economist at U.S. Bank, "You’d need to see mortgage rates pretty far below current levels, certainly below 6.75%, to incentivize homebuyers."
Factors Affecting Mortgage Rates
Economists are monitoring several factors that could impact mortgage rates, including the possibility of a war in the Middle East, which could spark fresh volatility across global markets. However, with the Israel-US-Iran ceasefire holding steady for now, rates haven’t undergone major fluctuations. Logan Mohtashami, lead analyst of Housing Wire, noted that traders mostly saw the bombing of Iran’s nuclear facilities as a short-term event, muting the impact on mortgage rates.
Fed Interest Rate Cut Still Projected for Fall
Despite pleas for lower consumer borrowing costs, the Fed held interest rates steady for the fourth consecutive time this year at its monetary policy meeting on June 18. While two Fed officials floated the possibility of a July cut, the market largely projects an interest rate cut in September. Fed Chair Jerome Powell has reaffirmed a "wait and see" posture, with concerns over the inflationary impact of tariffs.
How the Fed Impacts Mortgage Rates
The Fed is tasked with maintaining maximum employment and containing inflation, primarily through setting its short-term benchmark interest rate for lenders. A sluggish economy typically warrants interest rate cuts to stimulate growth, but lowering rates too quickly could fuel price growth when inflation is still above target. Monetary policy changes by the Fed influence overall borrowing rates, though it’s not a one-to-one relationship with home loans.
Impact of War and Tariffs on Mortgage Rates
Mortgage rates are highly sensitive to fiscal policy and supply chain shocks, so a global trade war and a military war with Iran could impact the direction of mortgage rates in either direction. For example, if inflation increases due to tariff policies or a surge in energy costs, mortgage rates could increase. Conversely, a prolonged conflict in the Middle East could spark fear of a downturn and propel investors to buy government-backed investments like US Treasury bonds, driving prices up and yields down, and temporarily pushing mortgage rates lower.
Coping with an Unaffordable Housing Market
The housing market remains unaffordable for many buyers, with steep home prices and high borrowing costs. According to Bovino, "Prices are still incredibly high. Add to that the borrowing costs of a mortgage, and it’s prohibitively expensive for most people to get into the housing market." Prospective buyers waiting for mortgage rates to drop may soon have to adjust to the "higher for longer" rate environment, with mortgage rates fluctuating between 5% and 7% over the longer term.
Strategies for Affordability
While market forces are out of your control, there are ways to make buying a home slightly more affordable. Here are some proven strategies that can help you save up to 1.5% on your mortgage rate:
- Build your credit score: A credit score of 740 or higher will help you qualify for a lower rate.
- Save for a bigger down payment: A larger down payment allows you to take out a smaller mortgage and get a lower interest rate from your lender.
- Shop for mortgage lenders: Comparing loan offers from multiple mortgage lenders can help you negotiate a better rate.
- Consider mortgage points: You can get a lower mortgage rate by buying mortgage points, with each point costing 1% of the total loan amount.
Conclusion
The future of mortgage rates remains uncertain, with various factors influencing their direction. While the Fed’s interest rate cut is still projected for fall, the impact of war and tariffs on mortgage rates is complex and multifaceted. By understanding these factors and using strategies to make buying a home more affordable, prospective buyers can navigate the challenging housing market and make informed decisions about their mortgage options.
