2025 Mid-Year Mortgage Rate Predictions (Update)

Dave:
Mortgage rates have remained stubbornly high throughout 2025, slowing down transaction volume in the housing market and stifling investors. So the question is, what happens from here? Is relief around the corner or are rates going to stay high for the rest of the year? Today I’m giving you our prediction for mortgage rates for the second half of 2025. Hey, what’s up everyone? Welcome to on the Market. I’m Dave Meyer, and today we’re talking about everyone’s favorite topic, mortgage rates. What could possibly be more fun? I know everyone is so freaking tired of talking about mortgage rates, but it is so important for the housing market for us as investors to understand where rates might be going. So we’re going to dig into that for the second half of 2025 here in today’s episode. Now, I know that most people who are listening to this episode right now are probably wishing that rates had already come down and we could talk about something else, but here we are midway through the year and rates are really not all that different from where they’ve been for most of 2025 and for the second half of last year as well.
And for some of those listening, the fact that things haven’t really changed that much may be pretty surprising. They were expecting rates to come down by now, but for others, maybe those who listened to the show regularly and believed and bought into my forecast for this year, this is exactly what they were expecting to happen. But regardless of what camp you fell into at the beginning of this year, I’m guessing that you are eager to hear what happens from here and that’s what we’re talking through today. So let’s get into it. First things first, let’s just talk about where we are as I’m recording this towards the end of July. It’s July 22nd while I’m recording this right now, the average rate on a 30 year fixed rate mortgage, and this is for an owner occupied, not necessarily for an investor, it’s about six and three quarters, 6.75, and there’s both good news here and bad news in this current reading.
First, the good news we’re slightly down from where we were a year ago was a little bit over 6.8 a year ago, so that’s basically the same, but it’s a little bit better, but it is down from where we were in January. If you remember back at the beginning of the year, mortgage rates had actually popped up to about 7.15, and so we are seeing about 40 basis points. That means 0.4% improvement in mortgage rates, so that’s pretty good, and they’re actually at a three month low, so just being at 6.8, I know it’s nothing compared to where we were in recent years, but just compared to earlier this year, it has gotten a little bit better, which is super important just for morale and transaction volume in the housing market. But of course when we zoom out and look at mortgage rates at 6.8% compared to what many people have gotten used to in the last two decades, it’s still really high.
And I know there are people out there saying historically that these are not high rates in the eighties, were above 10%. That is all true, but we talk about the impact on any given market or on buyer and seller sentiment. Most people aren’t making the decisions about whether they want to buy right now based on things that happened 40 years ago. They’re basing it on recent history and how rates are changing their monthly cash flows and their savings rates. And so the fact that rates are at 6.8% and they’re so much higher than they were just a couple of years ago does really matter for the market. Now again, there has been some improvement, but it’s just frankly not enough to really make any significant changes. We have not seen rates go down to the point where we would start to see transaction volume pick up At this point of the year, we are on pace for roughly 4 million home sales this year, which is really low.
A normal year is about 5.25 million. So we’re significantly below that and I’ve talked about this on other shows, but a lot of the research shows that through transaction volume to really start to pick back up, we need to get at least below a six, ideally to something around 5.5%. And so we’re still a ways off for that from an investor standpoint. Sure, it’s great to have rates at 6.8 instead of 7.1, but is that really changing cashflow prospects all that much? I don’t think so. Maybe it’s 50 or a hundred bucks a month in certain cases, so that could take a deal that you were maybe thinking about and make it okay, but it’s really not changing the psyche of investors at all. There are some other things like softening home prices that could be helping cashflow, but rates really haven’t contributed much to improve cashflow in the way I think a lot of investors were hoping for at this point in the year.
So that’s basically the big picture. Not very much has changed over the last year, and personally I am not surprised by this. I looked back at my predictions for what I said back in December about what was going to happen with mortgage rates here in 2025, and I said that I thought that rates would stay in the sixes the entire year. I’m sticking with that and that we would probably end 2025 somewhere in the mid sixes. So halfway through the year, that projection looks pretty correct. I think that just comes down to people who really understand mortgage rates and who really spend time understanding everything that drives mortgage rates, not just what’s going on in the news and with the Fed, that it was kind of clear that mortgage rates were going to stay high, particularly in the first half of 2025. Now, I want to dive into that just for a couple of minutes here to make sense of why rates haven’t changed all that much because that will set a foundation for us to make those predictions and what’s going to happen for the second half of the year.
Now, this show, we talk about it all the time, but it is worth repeating that mortgage rates do not track the fed. They track what goes on in the bond market and if we want to understand mortgage rates, I know no one wants to be talking about the bond market, but this is actually really what we need to be focused on because the bond market is sort of this really big reflection globally of how not just in the us not just real estate investors, but investors in general are feeling about all sorts of macroeconomic conditions that could be in the us, that can be in other developed economies, it could be the stock market, it can be fears of inflation or recession. All that sort of gets baked into what’s going on in the bond market and that’s why we have to study it so much.
So what happened in the bond market, it’s stagnated and that is why mortgage rates are stagnated. When you look at the yield on a 10 year US treasury, that is basically a treasury. It is a bond issued by the US government that people buy, which means that they’re lending the US government money for 10 years, and that is extremely closely correlated. It’s almost in lockstep with mortgage rates. So that’s what I’m going to be talking about for the remainder of this episode. When I talk about the bond market, what I’m talking about is the yield, basically the interest paid on that 10 year loan that investors are giving to the US government. And as you can probably tell by everything that I’ve said so far, mortgage rates stagnated in the first half of 2025 because the bond yielded stagnated. The way I see what’s going on here is we’re basically just trapped, right?
We have two really powerful forces that drive the global economy and they’re directly opposing each other. They’re kind of creating this log jam where mortgage rates and bond yields really can’t move. The bond market is very, very concerned primarily about two things. The first thing is inflation, because if you’re going to lend money to the US government at a certain rate for 10 years, you really want to make sure that the money that the government is paying you back on that loan is going to be worth the same amount, right? Because if there’s massive inflation over those 10 years, then every dollar that you get paid back by the US government is going to be worth a little bit less in inflation adjusted returns. And so bond investors are super concerned about inflation. The other thing that really impacts bond yields is recessions and the fear of recession, because globally it is generally believed that lending to the US government is close to the safest investment that you can make in the entire world.
And so when there are fears of recession and that the stock market is going to tank or that other economies are not going to do so well, a lot of investors take their money from riskier assets and they put it into bonds and they lend money to the US government, and that’s a great move for them because it’s generally considered safe. And what it does though is all that demand to lend to the government, the government says, Hey, so many people want to let us money. We don’t have to pay 4.5% anymore, we’re just going to pay them 4%. All that demand for treasuries pushes down the yield, and that takes mortgage rates down with them. And so when we look at what happened in the first half of 2025, it is these competing things. Some investors are super fearful about inflation, which pushes bond yields up.
Other investors are fearful about recessions, which pushes bond yields down. And depending on what the news of the day is, maybe mortgage rates go up 10 basis points. Maybe they go down 20 basis points, but these two general opposing views have really locked in the mortgage rates. Just think about it, right? We just in the first half of this year had all of these new tariffs. It almost feels like old news. Now, back to the Liberation Day tariffs in early April, but that was only three months ago, and we’ve seen enormous amounts of uncertainty about trade policy. Now, this trade policy, yes, a lot of economists believe that it’ll impact inflation and push inflation up, and I think there’s a good chance that does happen. On the other hand, a lot of economists are saying, actually, what we should be concerned about is that tariffs are going to hurt American consumers or the labor market or AI might hurt American consumers, and we’re actually going into a recession. So basically you have a log jam where half the market’s pushing up, half the market’s pushing down and things are staying the same. But what happens from here? Are we going to get certainty on anything economically speaking that will allow the bond market and mortgage rates to move in either one direction or the other? We do have to take a quick break, but after that we’ll get into my short-term forecast.
Welcome back to On the Market. I’m Dave Meyer giving my mortgage rate summary and predictions for the second half of 2025. Before the break, I talked about how the market’s basically been stuck. We haven’t seen a lot of movement in rates for the first half of the year, but the question of course is, is that going to change? Could we see rates move down? A lot of people are predicting in the second half of a year, or is it even possible that rates go up? Well, let’s talk about the macro forces that impact rates. As we talked about, these are things like inflation and recession. So inflation is, at least for me, the big thing on my mind because every economist, almost all of them, believe that tariffs contribute to at least short-term inflation. And although we’ve had a lot of talk about tariffs, the impact of those tariffs on inflation have not really been felt yet.
Personally, I don’t feel like we have a good reading on the tariffs impact on inflation just yet. I think we need to give it at least two or three more months before we can really say whether or not tariffs are noticeably changing the trajectory of the inflation trends. And I don’t want to draw any big conclusions about my own portfolio or my own projections about the economy before we get a few more months of data. And I’m saying this because I think the bond market’s probably in the same vein because again, bond investors are super concerned about inflation. So just the fact that we slightly we’re ahead of estimates for inflation over the last month, nothing crazy, but it was a little bit higher than people were expecting. That’s enough in my opinion, that bond investors are going to be like, wait a minute. I’m not going to make any big portfolio moves, or I’m going to keep my expectations for inflation relatively high over the next couple months before I get a good reading on what’s happening here.
Because bond investors, again, they really, really care about real returns, right? They want to make sure that the yield that they’re getting on that money minus the rate of inflation is still positive. And if inflation goes up a lot, that can turn negative in, that changes their entire strategy. So they’re going to be super focused on this. So that’s one thing. The second thing about my forecast for the second half of the year that we need to take into account is the labor market. Like I said, it’s still looking pretty good. If you look at hiring over the last couple of months, it’s still pretty solid. If you look at other measurements of employment like continued unemployment claims, this is basically a way you measure how many people got laid off and are having a hard time finding a new job. That has gone up a little bit, but it’s sort of started to flatten out.
If you look at initial unemployment claims, which is basically a measurement of how many people are being laid off in a given week, those have been really flat for a really long time despite all the headlines you see about these high profile layoffs. So this strength, relative strength, I should say, in the labor market, it gives the fed a little bit of cushion if they’re fearful about inflation, but the labor market is still pretty strong. They’re not going to be forced to cut rates in the short term. And as I’ve said, what the Fed does does not directly impact mortgage rates, but it is one of the variables that can impact mortgage rates, and the Fed can impact short-term rates, not mortgages, but shorter term lending, which could help stimulate the economy. But pretty much everyone agrees that the fed’s not going to cut rates here in July.
There are markets that bet on this kind of stuff. As of right now in these markets, there’s only about a 5% chance that the Fed cuts rates in July. If you fast forward to September, people are estimating at least about a 50 50 shot roughly that they will start cutting rates then. So maybe we will have some fed rate cuts, but they’re not coming for at least another month or two. That’s at least the consensus view. So those are two variables. And then the third is recession. Remember, if there are a lot of fears of recession, that can actually help push down mortgage rates, but right now when I look across the economy forecasters, Goldman Sachs, JP Morgan, all of these big forecasters, they’re all lowering their risk of recession here in 2025. And if bond markets believe the same thing, then we are not going to have the downward pressure on mortgage rates that we might have if people were more fearful of a recession.
The last thing that I do want to mention before I give my forecast for the second half of the year is fed independence. This is something that we need to talk about. We’ve talked about inflation and labor and recession, the big things that normally drive mortgage rates, but there is one other thing that’s going on here that really needs to be mentioned. This is this tension that’s been going on between President Trump and Fed Chairman Jerome Powell. If you’re not following this, president Trump has been very vocal that he believes that interest rates should be cut. He’s said he wants the federal funds rate as low as 1%. It is above 4% Currently, traditionally, the president has not had direct influence over the Fed’s decisions about monetary policy. This is called Fed independence, and the idea behind this is that the Federal Reserve should not be beholden to Congress or the President because there is risk that those political entities will use monetary policy for political gain.
That is the idea behind it. Proponents or people who don’t believe in fed independence say, Hey, we elected these people. We elected Congress and the President, and they should have direct control over monetary policy to pursue their agenda. And for many years, for decades, the people who believe in fund independence have strongly been winning out. We have had a fairly independent Fed people will debate what the right level of independence, that it’s not truly a part of the government that’s a private entity. There are a lot of valid arguments about that, but I just want to say that what’s happened over the last several decades is that the Fed has sort of made its own decisions without the President and without Congress interfering very often. Now, Trump has challenged that idea and said that he wants to be more involved in what’s going on with mortgage rates, and he’s gone so far as threatening to fire Jerome Powell, which it’s unclear if legally he has the power to do that, but he has threatened to do that.
He’s said that he thinks Powell should resign. He’s been very publicly issuing pressure to try and get Jerome Powell to lower rates while he’s still in office. And this just even the tension here really matters because again, what we’re talking about is bond investors and their fears about recession and inflation and what bond investors are worried about With this whole Fed independence thing and why a lot of bank CEOs and big time Wall Street traders are saying that we need to preserve Fed independence is that if for example, Jerome Powell or Trump or whoever lowers rates to 1%, while there is still fears of inflation from supply shocks or for tariffs or whatever, that could overheat the economy and lead to much, much higher inflation. And as we talked about, bond investors are very fearful of that. So this group of bond investors would prefer to have an independent fed because that means that the Fed is less likely to just pursue a growth agenda at the expense of inflation risk.
They see the Fed independence as a crucial check against inflation. And so the reason I’m bringing this up is because just the fact that there is tension or that we were calling the idea of Fed independence into question could spook bond investors and keep bond yields and therefore mortgage rates higher than they would normally be. And this goes beyond just the threats between Jerome Powell and Trump because in May of 2026, Trump just gets through a point a new Fed chairperson, and basically all the people he has considered are much more dovish. They are much more likely to cut interest rates. Now, it’s super hard to predict where the economy will be when that happens in May of 2026, but I think for a lot of bond investors, certainly for a lot of Wall Street types and CEOs in foreign governments, they’re concerned that a new Fed chair could implement policies that reignite inflation and that’s going to make them a little bit more cautious and demand higher yields in the short term.
So all this to say, when you factor all these things into account, you look at inflation fears, which includes the Fed independence debate, which includes recession risk, which includes the labor market. My guess is frankly, that we’re not going to see that much change for the second half of the year. I think we’re going to see a lot of these factors that have locked us in for the first half of the year stay there. I said this in December of 2024 that I didn’t think rates were going to come down that much. I thought they were going to stay in the mid sixes, and I’m sort of just sticking with that. In fact, I think we might stay above six point a half percent for the remainder of this year given where things are right now. Of course things are changing rapidly and Trump could rescind some tariffs or there could be a Black Swan event, but just the way the data is trending right now, I don’t really see a lot of strong evidence that we’re going to see rates move down more than perhaps just a little bit.
I hope they do come down a little bit. Maybe I’m wrong and they come down a lot, but just the way I read the data and the macroeconomic environment, I wouldn’t count on rates going down very much at all for the rest of this year. Now, that’s of course just my opinion, but if you look at other forecasters generally, most people now agree about this. If I look at Fannie Mae predictions, they think that now for the average of 2025 is going to be 6.7%, so basically not moving that much, but they think they’ll come down to about six point a half by Q4. If you look at the Mortgage Bankers Association, they think it’s going to stay at 6.7% to the end of the year. Other forecasters, like the National Association of Home Builders, they thought that rates would come down to 5.8% this year.
Now they’re saying a little bit above 6%, so they’ve even come up a little bit, but they’re a little bit more ambitious than I am. So I think generally speaking, most economists, most forecasters are now saying somewhere in the sixes, I think I’m sort of on the higher end of that range at 6.5% ish by the end of the year. I’m sticking with my original prediction and honestly, this is almost regardless of what the Fed does. I know everyone’s talking, oh, if the cut rates in July or September, mortgage rates are going to go down, I’m not so sure. Right? We saw this, they cut rates last September, they cut rates last November and mortgage rates went up. So I really wouldn’t focus that much on what the Fed is doing. It really all comes down to the bond market, and I personally believe we’re just not going to see enough clarity in the macroeconomic environment to things to change so much. So that’s my forecast for the remainder of this year, but I do want to talk about long-term interest rates. This has been on my mind a lot recently. I’ve spent a lot of my personal time frankly researching the impacts of what’s going on economically for long-term mortgage rates, and we’re going to get into that because it’s super important for real estate investors. We’re going to get into that right after this break.
Welcome back to On the Market. I’m Dave Meyer talking about mortgage rate predictions. Before the break, I talked about my short-term forecast for the rest of this year. I still think we’re in the mid sixties for the remainder of this year. Hopefully I’m wrong and things get a little bit better than that, but that’s the way I read the tea leaves. As I’ve been doing this research and just trying to plan my own portfolio, I also have been looking at long-term mortgage rates and to me, this is not necessarily this year or even next year, but when I look at this long-term projection, I have a take that you may not have heard, and I’m still trying to figure out what level of conviction I have with this prediction, and I think a lot of people go on social media and they say everything. It’s definitely this market’s crashing.
This is definitely going to happen. I’m a trained analyst. I’m taught to think in probabilities and I don’t really know what probability I sign this to, but as of right now, I think the risk of mortgage rates sort of staying as high as they are now or perhaps even going up over the next five or 10 years is higher than most people think. I believe that a lot of investors and people who have gotten into real estate over the last 10, 15 years assume that we’re going to go back to the average that we had from the Great Recession till now, which is the average over those 15 years was somewhere around five 5.5%, and there is a good chance that happens, but I just want to explain that there is a very reasonable case to be made that even if they go down in the next year or so, that in the five 10 year horizon we might see rates as high as they are today.
We might even see higher rates. And to me, this all comes down to the US debt. It is a big problem. I know everyone intuitively understands that debt is a big problem, but I just want to get into why it is a problem specifically for the housing market in the form of mortgage rates. Here’s how this works. Basically, all of the debt that we have in the United States is created by the bonds that we were talking about, right? We talked about a bond being a loan to the US government, so when the government passes a spending bill to spend money on whatever it is that they’re spending money on at the time, and they don’t have enough tax revenue to pay for that, the way they get the money is they issue bonds. They basically issue a call to investors and say, who wants to lend the US government money at right now for 10 years?
It’s about four and a half. We’ll pay you four and a half percent interest to lend the US government money for 10 years. Now, for many, many years in the US we’ve enjoyed a very privileged position where a lot of investors, both domestically and internationally do want to lend the US government money at relatively low rates, but they do that because we have this very stable economy that has grown and grown and grown, and that has largely worked out for those bond investors. But large federal deficits can really sort of throw this whole dynamic into disarray as we have more debt. It creates this snowball effect where actually more and more of the US government’s budget actually goes just to paying off interest, and that means there is less money for all the essential programs that they’re paying for. And so what do they do to pay for those programs?
They issue even more debt, which means that even more of the budget goes to paying interest on that debt instead of paying for services, and this can really spiral out of control just for some context. Just a couple of years ago, about 7% of the total budget for the federal government in a year went to interest payments that is projected by 2025, but the end of this year, that’s projected to be 18%, so that is more than double in just a couple of years, and this is a function of both more debt being issued and paying a higher interest rate on that debt than we have in the last couple of years. And so how does that stop? Right? There are a few ways that this can not be a disaster. You could either cut spending, you can raise tax revenue, or there’s a third way that you can actually do this, which is printing more money to pay the debts that you have.
Now, of course, different people are going to have different beliefs about what should be done here, but if you look at the track record of both political parties for the last 20, 30 years, no one has significantly cut spending or been able to increase revenues enough to run at a surplus, not since Bill Clinton has the federal government run at a surplus. We are always running a deficit every year for the last 25 years, and the size of those deficits every year just keeps getting bigger and bigger and bigger. And so you might believe that we should cut spending. You might believe that we should raise tax revenue, but neither of those things is happening, and personally I believe that’s because no politician, regardless of what side of the aisle you’re on, wants to do those unpopular things, right? No one wants to raise taxes, no one wants to cut spending because they’re popular programs and taxes are unpopular, right?
So if you gain this out and think about the likely things that could happen, one of the very likely things is that the US Treasury just decides to print more money and to pay off those debts, and for some people, they might say, that’s a great idea. I don’t want to have higher taxes. I don’t want to cut spending, so why don’t we just print more money? Well, that creates inflation risk, right? This is this big game of global finance is that that creates financial risk, which means all of the debt that the US still needs to issue is going to be paid at a higher and higher rate. It also means that demand for US treasuries is going to go down because no investor wants to buy a bond from a government that is just going to print money and devalue your own investment.
That’s exactly what it does. It sends a signal to the entire bond market, to all the investors that are lending the US government, trillions and trillions of dollars. It sends a message to them that the US government does not care about their returns and just is going to print money and basically leave the bond holders holding the bag for all of the debt that the US has accumulated. Now, that hasn’t happened yet, but when you sort of start thinking about some of these things that could happen, I think the risk of this happening is getting higher and higher and higher. Some of you probably know who Ray Dalio is. He’s a hedge fund manager. He’s written a couple books on this. Highly recommend if you want to learn about this. I just read his book, the Changing World Order, talked about that. He basically lays out a really rational case that this is a likely outcome for the US if we don’t change our trajectory soon.
Now, hopefully we do change our trajectory, and this is not what happens, but when I look at the probability of this, if this does happen, that’s going to push mortgage rates up well into the future, and I think we need to acknowledge that that risk of higher interest rates in the future is very real, and this idea that we’re going to get back to mortgage rates that are 5% or 4% at some point is not as strong an argument as I think a lot of the people, particularly on social media are saying that it is. Now, we are still a long way away from that happening, but I bring this up because I personally am changing a little bit of my own investing strategy based on this research that I’ve been doing. I’m still buying real estate because I think in these scenarios where there’s a high risk of inflation, real assets like gold and yes, like real estate tend to hold their value really well, but what worries me is variable rate debt, right?
If I think that mortgage rates may go up in the five to 10 to 15 year time horizon, all of a sudden assets like commercial real estate that has variable rates, balloon debt on it that might refinance in seven years or 10 years, that becomes a little bit riskier to me. Now, I’m not saying that you can’t buy them because values are actually really low and you can buy at a discount right now, but it means that personally, I’m going to favor fixed debt even more than I have in the past. Now, I don’t personally buy a lot of large multifamily. I’ve been looking at them this year, but if I buy a large multifamily, I’m almost certainly going to try and find fixed debt on that property, even if that means I have to pay a higher initial interest rate because I want to protect myself against rising mortgage rates over the long term.
It also means that maybe I won’t buy large multifamily and I’ll just focus on four units and fewer properties because those are eligible for residential finance, which is almost always available with fixed term debt. Now, of course, everyone should do what they want, but I just wanted to share with you my recommendations. Some of the decisions I’m going to be making based on this research, again, still buying real estate, but I am buying it assuming that rates are going to at least stay the same in the short term. I’m not underwriting deals. I never have subscribed to this idea of date the rate marry the house. I’ve tried to call that out for years as really bad advice, and as the markets have shown us, that is really bad advice, right? Everyone who’s predicting rates would go down in 23, 24, 25, they were all wrong. The only thing that you can do as an investor is underwrite deals with the rates as they are today, and I highly recommend everyone do that.
I think deals are going to get better and better, as I’ve been saying, because there is more inventory on the market, pricing is softening, and even though rates might not come down, affordability is likely to start to improve, so that’s number one. The second thing is think really hard about anything that you’re going to buy with variable debt. As I said, I’m not trying to fear monger. I do not know if we’re going to get into one of these debt spirals, but I think the risk of that happening is starting to go up and all things being equal in a scenario like this, fixed rate debt is better debt, and I’m going to focus my own buying on assets where I can get that fixed rate debt because to me, that is super valuable in any environment where there is risk of a debt spiral or there is risk of inflation.
All right, so that’s it. That’s what I got for you guys today. That is my mortgage rate outlook for the second half of 2025. Also, with some sprinklings of my fears about mortgage rates over the long run. Hopefully, this research and this episode has been helpful to you in your own decision making. If it has, we always appreciate you sharing it with someone who had learned something from this as well or leaving us a great review on Apple or Spotify. Thank you all so much for listening to this episode of On The Market. I’m Dave Meyer. See you next time.