Buyers should keep an eye on the possibility of rate cuts in the next few months.
The average rate on a 30-year fixed mortgage was around 6.7% on Monday, down roughly 0.25% from the previous month, according to Bankrate data. Despite the recent decline in rates, forecasts for the housing market have remained unchanged.
Mortgage rates, linked to the bond market, have been stuck in limbo between 6.5% and 7% for months. President Trump’s on-and-off-again tariffs, stock market swings and geopolitical turbulence have created ongoing uncertainty in the housing market. This week, financial markets are bracing for a bevy of White House announcements, including threats of new tariffs.
Though jobless claims and layoffs are increasing, the most recent jobs report from the Bureau of Labor Statistics showed a lower-than-expected unemployment rate. Strong labor market data tends to drive up bond yields, which translates to higher mortgage rates.
As I’ve discussed in the past, a steady job market also makes it less likely that the Federal Reserve will carry out an interest rate cut this summer. Bond market investors drive yields (rates) higher or lower based on their expectations for inflation, unemployment, Fed policy decisions and government debt.
Market watchers are currently betting on September for a Fed reduction. But that won’t be a magic cure for the housing market. Fannie Mae projects mortgage rates to stay above 6.5% throughout 2025. Mortgage rates would need to fall substantially from current levels to encourage homebuying demand, said Beth Ann Bovino, chief economist at U.S. Bank.
Tariffs, the Fed and mortgage rates
The central bank is responsible for ensuring full employment and controlling inflation, mainly by setting short-term interest rates for banks. Though the Fed’s policy changes have a ripple effect on all borrowing rates, the central bank doesn’t directly set the rates on home loans.
The market currently projects an interest rate cut in the fall, though two Fed officials floated the possibility of a rate cut this month. Fed Chair Powell has reaffirmed a “wait and see” posture, with concerns over the inflationary impact of tariffs.
Despite widespread pleas for lower consumer borrowing costs, including from the White House, the Fed held interest rates steady so far this year, and is likely to do the same at its July 29-30 meeting.
“With inflation data still sticky and tariffs ongoing, the consensus possibility remains a first cut in September, if not later,” said Erin Sykes, housing economist and founder of Sykes Properties.
Since mortgage rates are highly sensitive to fiscal policy and supply chain shocks, a global trade war could impact their direction. For example, if the official inflation rate does increase due to tariff-induced price hikes, the Fed could further postpone rate cuts, and mortgage rates could increase.
“Even though many of the tariffs are in place, some of the big ones have yet to take effect,” said Beth Ann Bovino, chief economist at U.S. Bank. The average household in the US is expected to lose about $3,000 in income from tariffs, with lower-income households getting hit even harder, according to Bovino.
Plus, with recession risks still on the horizon, people who are nervous about finances will be more reluctant to take on mortgage loan debt.
Navigating today’s housing market
Major affordability challenges resulted in another inactive spring homebuying season. Even as the long-standing housing shortage eases in several local markets and gives some buyers improved negotiating power, the rest remain locked out by steep home prices.
“Prices are still incredibly high,” Bovino said. “Add to that the borrowing costs of a mortgage, and it’s prohibitively expensive for most people to get into the housing market.” Plus, with recession risks still on the horizon, people who are nervous about finances will be more reluctant to take on mortgage loan debt.
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.
While market forces are out of your control, there are ways to make buying a home slightly more affordable. Last year, nearly half of all homebuyers secured a mortgage rate below 5%, according to Zillow.
Here are some proven strategies that can help you save up to 1.5% on your mortgage rate.
💰 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.
Watch this: 6 Ways to Reduce Your Mortgage Interest Rate by 1% or More
