Mortgage Rate Predictions: The Trump Effect Is Stalling the Housing Market

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Mortgage rates aren't budging, and neither is the housing market, as investors continue to weigh the unknowns of President Trump's economic policies.

According to Bankrate, the average rate for a 30-year fixed mortgage crawled past 7% last week, up from around 6.75% a month ago.

However, despite an increase in housing inventory, pending home sales plummeted by 6.3% last month, according to the National Association of Realtors.

"At this critical stage of the housing market, it is all about mortgage rates," said Lawrence Yun, NAR chief economist, in a statement last Thursday. "Lower mortgage rates are essential to bring homebuyers back into the housing market."

Most analysts predict that a meaningful drop in mortgage rates isn't on the horizon.

We're likely to see more economic volatility over the coming weeks and months. Overall, prospective homebuyers should expect rates to remain near 6.8% for the remainder of 2025, according to Redfin's forecast.

What's impacting mortgage rates right now?

Though a temporary reprieve from the most aggressive tariffs has eased some stagflation fears, economists caution that tariff-driven price bumps could derail the Federal Reserve's interest rate cuts.

"As long as the tariffs remain high, there will be a worry about persistently high inflation that the Fed cannot ignore," said Chen Zhao, Redfin's head of economic research.

Fewer interest rate cuts combined with the administration's budget bill, which is expected to increase government debt deficits significantly, are likely to keep upward pressure on longer-term bond yields, directly impacting the mortgage market.

Since the 30-year mortgage rate closely tracks the 10-year Treasury yield, rising bond yields translate to higher rates for home loans.

Could the Fed still cut interest rates?

While the Fed's actions don't immediately dictate mortgage rates, they indirectly influence how much it costs to borrow money across the economy.

Following signs of cooler inflation, the Fed cut interest rates three times in 2024, making borrowing costs slightly less restrictive. However, the Fed has been in a holding pattern since then, waiting to see the long-term implications of the president's policies before it lowers rates again.

Economists now predict the Fed will delay interest rate cuts until at least September.

"There's way too much uncertainty as to what becomes of the tariffs, inflation and the broader economy," said Keith Gumbinger, vice president at HSH.com. "There may be no cut at all if conditions don't support it."

While recent economic data shows some decline in official inflation figures, price growth is expected to go up. As domestic companies pass expensive duties onto consumers in the form of higher retail prices, inflation is likely to escalate again.

Gumbinger said mortgage rates have been holding somewhat steady in a high range because there is no clear path ahead for the economy, inflation or Fed policy.

Could a recession result in lower mortgage rates?

Mortgage rates are likely to stay above 6.5%, and any dips will probably be small and temporary. Rates will move based on incoming economic data and how investors respond to policy shifts.

"The situation could change quickly if there are new announcements out of the Trump administration or if global economic conditions weaken," said Lisa Sturtevant, chief economist at Bright MLS.

For example, if the unemployment rate climbs significantly due to layoffs, the Fed might consider easing policy to avert a deeper downturn.

A recession isn't a foregone conclusion, but it's still a possibility: Jobless claims are on the rise, consumer spending has slowed and economic growth declined in the first quarter of 2025. The prospect of a potential economic downturn is weighing heavy on consumer confidence.

Even if the by-product of an economy in freefall is lower mortgage interest rates, buyers who are worried about job security and affording the high cost of living will be hesitant to take on mortgage debt.

"When people are anxious, they are less likely to make big decisions, like buying and selling a home," Sturtevant said.

What do housing market experts recommend?

In today's unaffordable housing market, prospective buyers have multiple reasons to postpone plans for homeownership. High mortgage rates and growing unease about economic instability have kept overall activity low.

"Given so many unknowns, it is a good time for caution. But if the market presents a potential homebuyer with a house they love and can afford, there's little reason not to take advantage of the opportunity," said Gumbinger.

Homeownership offers the promise of long-term financial stability and generational wealth-building through equity.

If you're waiting for mortgage rates to come down before buying, keep in mind that the large-scale economic issues affecting the housing market are beyond your control. Instead, you can focus on the ways to bring down your individual mortgage rate, said Hannah Jones, senior research analyst at Realtor.com.

For example, shopping around for lenders can save borrowers up to 1.5% on their mortgage rate. Since each lender offers different rates and terms, you can always negotiate a better rate. If you're financially ready to buy, you can always refinance your mortgage down the road.

Jones said other strategies for lowering your mortgage rate include improving your credit score, making a larger down payment or choosing a more affordable home.

Experts recommend making a homebuying budget and sticking to it. Creating a realistic financial plan can help you decide if you can handle the costs of homeownership and provide you with some guidance for how large your mortgage should be.

Watch this: 6 Ways to Reduce Your Mortgage Interest Rate by 1% or More

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