Mortgage rates aren’t likely to fall anytime soon, even with President Trump’s decision to implement a 90-day pause on reciprocal tariffs for most countries. You can blame disarray in the bond market.
Treasury yields are directly linked to mortgage rates; when bond yields rise, so do borrowing costs on home loans. Trump’s April 2 announcement to slap sweeping tariffs on US trading partners not only sparked a massive plunge in stocks — it also led to a sell-off of government-backed bonds, which sent Treasury yields higher.
TAX SOFTWARE DEALS OF THE WEEK
Deals are selected by the CNET Group commerce team, and may be unrelated to this article.
By Friday’s market close, the average rate on a 30-year fixed mortgage had jumped to 7.1%, up more than half a percent in just a week, according to Mortgage News Daily data.
Since early 2022, high mortgage rates have locked out new homebuyers. Expensive interest rates have also contributed to keeping resale housing inventory tight, as current homeowners refuse to give up the cheaper, sub-5% mortgage rates they scored just a few years ago.
While experts predict rates will move lower throughout 2025, it won’t be a dramatic decline: Fannie Mae expects average 30-year fixed mortgage rates to remain around 6.5%. And with investors and lenders bracing for more news on Trump’s trade agenda, more panic-based turbulence is likely in the coming months.
“So much of the present volatility seems based on emotion rather than logic or reason, making it hard to know what to expect,” said Keith Gumbinger, vice president of HSH.com. Given that tariffs are still in negotiations, there’s no way to know the exact outcome in the financial markets, he said.
Read more: Spiking Bond Yields May Have Paused the Tariffs, but They Could Cost You in the Long Run
Why bond yields matter for mortgage rates
Mortgage interest rates change constantly in response to an interplay of economic factors, including inflation and labor data, investor expectations and geopolitical events, which can all trigger shifts in the bond market.
Usually, during times of economic uncertainty or turbulence in the stock market, investors flock to the safety of US Treasurys, causing bond yields to drop as demand for these lower-risk assets rises.
However, this time is different: Ongoing concerns about inflation, unemployment and government debt levels have kept Treasury yields elevated, pointing to declining investor confidence writ large in the US economy. A decline in demand for bonds translates to higher yields.
Bond yields had already been on the rise even before last week, fueled by a combination of risk factors, including the inflationary impact of tariffs. Concerns about escalating US debt and deficits could also make Treasury bonds appear less secure, particularly if the economy were to tip into a recession.
For bond yields (and mortgage rates) to fall meaningfully, there needs to be greater clarity on the changes to trade policy. Knowing the new baselines would at least help investors manage their expectations regarding inflation, growth and Federal Reserve policy, said Gumbinger.
Watch this: 6 Ways to Reduce Your Mortgage Interest Rate by 1% or More
Mortgage rate outlook under Trump
Though much is still uncertain, 30-year fixed mortgage rates aren’t likely to drop below 6.5% without weaker economic data and a series of interest rate cuts. After inflation showed ongoing signs of slowing in late 2024, the Fed lowered rates three times but has kept them on pause so far this year.
Economists note that an uptick in prices and retaliation from other countries could hamper the Fed’s projected pace of interest rate cuts. Mortgage rates, which are highly sensitive to fiscal policy and economic growth, could increase if inflation stays elevated.
“Big tariffs right now wouldn’t just make inflation worse — they could set off a chain reaction of economic trouble that central banks and governments aren’t ready to handle,” said Greg Sher, managing director at NFM Lending.
Today’s complex economic picture presents a challenge for the Fed, which is tasked with maintaining maximum employment and containing inflation. A slowdown in the economy could encourage the Fed to resume cutting interest rates early this summer, making overall borrowing less costly. But if cheaper mortgages are a by-product of an economic downturn, with households facing job losses and tighter budgets, it could also keep the housing market frozen.
Read more: Think a Recession Will Make Homebuying and Mortgages Cheaper? Not Quite
Advice for buyers in the market
Prospective homebuyers waiting for mortgage rates to drop for the past few years may soon have to adjust to the “higher for longer” rate environment, with mortgage loan rates fluctuating between 5% and 7% over the longer term.
Rates around 6% may seem high compared to the recent 2% rates of the pandemic era. But experts say getting below 3% on a mortgage is unlikely without a severe economic downturn. Since the 1970s, the average rate for a 30-year fixed mortgage has been around 7%.
Today’s unaffordable housing market is a result of a combination of high mortgage rates, a long-standing housing shortage, expensive home prices and a loss of purchasing power due to inflation. While market forces are out of your control, there are ways to make buying a home slightly more affordable.
Here’s what experts recommend if you’re in the market for a home in 2025:
💰 Build your credit score. Your credit score will help determine whether you qualify for a mortgage and at what interest rate. 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. If you can afford it, a down payment of at least 20% will also eliminate private mortgage insurance.
💰 Shop for mortgage lenders. Comparing loan offers from multiple mortgage lenders can help you negotiate a better rate. Experts recommend getting at least two to three loan estimates from different lenders.
💰 Consider mortgage points. You can get a lower mortgage rate by buying mortgage points, with each point costing 1% of the total loan amount. One mortgage point equals a 0.25% decrease in your mortgage rate.
Add comment