Buying a home in 2025 is certainly doable, but it comes with more challenges than in years past. As of late 2024, data from ICE Mortgage Technology shows that the average monthly mortgage payment for a typical home — covering just principal and interest — is around $2,385. That’s a significant jump of nearly 80% compared to late 2021, when lower interest rates brought the average payment down to about $1,327.
The most important mindset for buying a home in a shaky economy to focus on the current market conditions instead of wishing for the past. Housing costs have shifted, and it’s essential to adjust your expectations and budget accordingly. On a positive note, with the 2024 election now behind us, some of the uncertainty that typically cools the market during election years has started to fade, potentially opening up new opportunities for both buyers and sellers.
<h3>Watch the Market Outlook</h3>
Getting ready to buy a home is a bit like preparing for changing weather. I’s easier when conditions are ideal, but with the right preparation, you can navigate any environment. Looking ahead to 2025, real estate experts are predicting a slower pace of home price growth compared to the sharp increases seen in recent years.
To put things in perspective: home prices have been rising consistently, with the median price for an existing home reaching $407,200 as of October, following over a year of steady year-over-year gains. However, things are expected to cool slightly. With more homes becoming available, price growth is likely to ease. According to the National Association of Realtors, the median price could rise modestly to about $410,700 next year, a 2% increase from the current year.
Regarding the availability of homes: Currently, the number of people wanting to buy still exceeds the number of homes for sale. Although we don&#8217;t anticipate a shift back to a market that strongly favors buyers, the level of competition among them should decrease. Realtor.com predicts a more balanced market in 2025, with an average of 4.1 months&#8217; worth of homes available for sale. This is an increase from the average of 3.7 months&#8217; supply seen so far in 2024. If this prediction holds true, 2025 would offer the most favorable conditions for buyers since 2016, which had an average supply of 4.4 months.
Lastly, concerning mortgage interest rates: After reaching a high of over 8% in October 2023, the average rate for a 30-year mortgage has gradually declined to the 6.5%-7% range this year. Reductions in rates by the Federal Reserve have contributed to this downward trend. Despite earlier optimistic predictions, the latest consensus among forecasters suggests that mortgage rates will likely stabilize above 6% throughout 2025.
<h3>Create a Home Buying Budget That Works for You</h3>
While national housing trends are useful, they won’t tell you what really counts — how much you personally can afford. Start by reviewing your income, expenses, and savings to get a clear picture of your financial situation. Meeting with a financial advisor or using a home affordability calculator can help you estimate a realistic price range. You can also turn to HUD-approved housing counselors, who offer guidance at little or no cost.
Once you know your budget, explore financial assistance options. Many state and local housing agencies, lenders, and non-profits offer help with down payments and closing costs. Some employers and unions also provide support. While first-time buyers with moderate incomes tend to have the most resources available, there are programs open to returning buyers and higher earners as well.
<h3>Work with a Knowledgeable Buyer’s Agent</h3>
In today’s market, having an experienced buyer’s agent on your side can make a big difference. While drafting a purchase offer is something many people can do, a seasoned agent brings far more to the table — such as understanding market trends, anticipating potential issues, and finding smart solutions tailored to each unique deal.
Thanks to recent changes following a legal settlement with the National Association of Realtors, buyers now have the ability to discuss and agree on their agent’s pay directly, instead of relying on the seller to handle that arrangement. This shift gives buyers more control and clarity when choosing who to work with.
<h3>Compare Loan Options and Be Ready to Negotiate</h3>
Once you’re financially prepared, the next step is exploring mortgage options. Don’t settle for the first offer. Reach out to at least three lenders to compare rates and terms. If you’d rather not handle the legwork yourself, consider working with a mortgage broker. While they charge a fee, brokers often have access to a wider range of loan products and may be able to secure a better rate, potentially saving you money overall.
After securing a mortgage preapproval, you’re in a strong position to start house hunting. And you don’t have to wait for the spring market rush. Winter months, particularly December through February, often mean fewer buyers and more room to negotiate, which could lead to a better deal.
<h3>Is 2025 the Right Time for You to Buy a Home?</h3>
If making a down payment or covering a monthly mortgage doesn’t fit your current budget, there’s nothing wrong with hitting pause and focusing on building up your savings. Homeownership also comes with long-term responsibilities, and it isn’t the ideal choice for everyone’s lifestyle. That said, if you’re financially prepared, whether you’re buying your first home or moving to a new one, try not to get stuck waiting for mortgage rates to fall.
Interest rates naturally go up and down, and if they drop after you buy, refinancing is always an option. For first-time buyers especially, owning a home is a big financial step forward . The earlier you start, the more time you’ll have to grow your home equity.

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Buying a house in a shaky economy has presented challenges for individuals looking to purchase homes due to increasing property values and elevated mortgage interest rates. This has left many prospective buyers waiting for a more favorable time to enter the market.
The housing market might see some improvement in 2025 now that the Federal Reserve has begun to lower interest rates. However, the uncertainty surrounding tariffs and their potential effects on the broader economy makes it difficult to predict the market&#8217;s exact trajectory this year. For those considering buying or selling a home in the near future, it&#8217;s important to understand the current forecasts for the housing market in 2025 and how to get ready.
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<h3>Current State of the Housing Market</h3>
According to Zillow, the typical home value across the United States stands at $357,138, showing a 2.6% increase compared to the same time last year. In March of this year, the average interest rate for a 30-year mortgage was 6.45%, a slight decrease from the month before. Over the last couple of years, high mortgage rates have coincided with rising home prices, making it increasingly challenging for people to afford their own home. This high cost of purchasing property has also discouraged many potential sellers from listing their homes, further reducing the already limited number of houses available.
Consequently, the housing market has presented significant hurdles for prospective buyers in recent years, especially those buying their first home. First-time buyers often have less financial flexibility and benefit most when mortgage rates are lower and home prices are stable. However, the situation regarding affordability might see some improvement this year if mortgage rates decline and the rate at which home prices increase slows down.
<h3>Major Drivers Shaping Housing Market Trends</h3>
The state of the housing market is shaped by a variety of elements, encompassing broad economic conditions, the rate at which new houses are being built, and the prevailing cost of borrowing money for a mortgage. Currently, some of the most significant factors impacting the housing market are the overall health of the economy, the level of mortgage interest rates, and the limited number of homes available for sale.
Federal Reserve&#8217;s Actions and The Economy
When inflation reached unusually high levels in 2022, the Federal Reserve began to sharply increase the federal funds rate to try and bring inflation down. This action contributed to an increase in mortgage interest rates. Since then, the rate of inflation has decreased considerably. The Consumer Price Index, a measure of inflation, showed a 2.4% increase over the year in March, a significant drop from the 9.1% peak observed in June 2022. Due to this substantial slowdown in inflation, the Federal Reserve started to reduce its key interest rate last year. They lowered the federal funds rate by 0.50 percentage points in their September meeting and then by 0.25 percentage points in both November and December.
However, despite the relatively low level of inflation, it has proven to be persistent recently. This has led to concerns that the Federal Reserve might not be able to lower interest rates as much as initially anticipated in 2025. An additional concern is that tariffs are expected to cause inflation to rise again. If this occurs, the Federal Reserve might not reduce interest rates at all.
While mortgage rates are not directly tied to the federal funds rate, their general direction often reflects investors&#8217; expectations about how the Federal Reserve&#8217;s actions will influence the overall economy.
Limited Housing Availability
A recent study by Zillow indicated that the United States has a shortage of 4.5 million homes to have a balanced housing market. When an area doesn&#8217;t have enough homes available for the number of people who want to live there, the prices of homes and the cost of renting tend to increase.
Mortgage Interest Rates
The fact that mortgage rates have been high has meant that there hasn&#8217;t been a huge amount of demand for buying houses lately. This situation has also caused many people who might otherwise sell their homes to stay put, as they don&#8217;t want to lose their existing low mortgage interest rates.
While high mortgage rates can sometimes act to moderate or even decrease the rate at which home prices increase, the persistent shortage of available homes in the U.S. has overridden this effect. As a result, home prices have continued an upward trend over the past few years.
<h3>2025 Housing Market Forecasts and Expectations</h3>
In 2025, it&#8217;s anticipated that mortgage interest rates will decrease somewhat, and the rate at which home prices increase will also slow down. This should make it easier for people to afford to borrow money to buy a home. However, the extent to which mortgage rates will fall is uncertain, and there&#8217;s also a chance they could go up again if inflation increases. Because of this, purchasing a home might still be too expensive for some potential buyers.
Outlook for Housing Inventory
To see a recovery in the housing market, the number of homes available for purchase needs to go up. It&#8217;s anticipated that as mortgage interest rates fall, more homeowners will be encouraged to sell their properties, which will lead to a greater inventory of homes on the market.
Looking at new construction, Fannie Mae predicts that the number of new residential projects breaking ground will decline slightly in 2025, but then will increase in 2026. On the other hand, the Mortgage Bankers Association forecasts a continuous rise in the number of new home starts throughout both 2025 and 2026.
Predictions for Home Prices
Generally, experts anticipate that home prices will continue to rise, but they expect the rate of this increase to be less rapid in 2025. Fannie Mae projects that home prices will increase by 3.5% from the previous year in 2025 and by 1.7% in 2026. The Mortgage Bankers Association forecasts a slower rate of price growth, expecting a 1.3% year-over-year increase in 2025, with the same rate of increase in 2026. The National Association of Realtors predicts a 3% rise in the median home price in 2025, followed by a 4% increase in 2026.
Predictions for Mortgage Rates
It&#8217;s anticipated that mortgage interest rates will see a slight decrease in 2025. By the end 2025, these rates could potentially fall into the lower to middle 6% range. However, this expectation is dependent on inflation continuing its downward trend. If inflation starts to rise again, it&#8217;s likely that mortgage rates will also increase.
<h3>Will Buying a Home Ever Make Sense Again?</h3>
Many potential homebuyers feel discouraged by the current market conditions and have started to believe that renting is their only option. While it&#8217;s true that buying a home in a shaky economy is significantly more costly compared to previous years, the dream of homeownership is still achievable for many. This is particularly true given the increasing availability of mortgage options specifically for first-time buyers, along with various programs that offer assistance with down payments.
Currently, it&#8217;s possible to secure a mortgage with a down payment as low as 1%, and utilize financial aid for both the down payment and closing costs, thereby reducing the initial amount of required to make a purchase. Furthermore, although home prices are not expected to decrease, mortgage interest rates are likely to fall. A lower mortgage rate increases the amount you can afford to borrow, which can offset the impact of rising home prices and enhance your purchasing ability.
Over time, as construction companies build more homes and increase the housing supply, the rate at which prices increase should slow down, and there should be less intense competition among buyers. However, it might take several years for these effects to become noticeable.
<h3>Should You Buy a Home Now?</h3>
Deciding if now is the right moment to purchase a home involves considering various elements, such as the prevailing mortgage interest rates, the specific conditions of your local housing market, and your personal financial circumstances. It could be beneficial to consult with a real estate agent to understand the current trends in your area&#8217;s housing market. They can provide insights into the number of properties available within your budget and advise on the most favorable time to buy in your specific location.
<h3>Key Considerations for Today’s Home Sellers</h3>
Many potential sellers have been hesitant to list their properties because they are locked into historically low mortgage rates, and the recent high rates made relinquishing those favorable terms less appealing. However, as mortgage rates gradually decrease, giving up their current low-interest mortgages will become less of a concern. If you are thinking about selling your home, this year might present a favorable opportunity. The anticipated easing of mortgage rates should boost buyer demand, potentially making it easier to sell your home at your asking price your even higher.
<h3>When Will the ‘Silver Tsunami’ Affect Home Prices?</h3>
Despite the expected decrease in mortgage rates, the limited number of homes available for sale will likely continue to be a challenge for buyers. However, the housing market conditions may shift in the coming years due to the &#8220;silver tsunami,&#8221; a term that describes the potential effects of a growing number of baby boomers reaching an age where they might move out of their current homes.
A significant amount of property is currently owned by the baby boomer generation. However, as they age and either pass away or relocate to senior living facilities, a growing number of these properties will become available for sale. Since these seniors are generally not in the market to buy another residence, this process introduces a new supply of homes that was not previously available.
This increase in housing inventory could make it less challenging for first-time homebuyers and others with limited funds to purchase a home. It should help reduce the intensity of competition among buyers and allow home prices to increase at a slower rate. Nevertheless, it is likely to take several more years before the effects of this demographic shift become significantly noticeable in the housing market.
<h3>Steps to Get Ready for Homeownership</h3>
If you&#8217;re aiming to buy a home in the near future, here are some important steps to take to get ready for homeownership.
1. Put your finances in order
Ensuring your financial situation is strong can help you secure the most favorable mortgage interest rate available, regardless of the general trends in average rates. One relatively quick way to boost your credit score is to reduce your credit utilization. This action will also lower your debt-to-income ratio, which is another key factor that mortgage lenders evaluate when determining the interest rate they will offer you.
Prospective homebuyers should think about paying off their credit card balances to improve their credit scores. If you&#8217;re working on paying down credit cards or other lines of credit, it&#8217;s generally best to start with those that have the highest interest rates. After that, focus on paying off the smallest balances. The positive outcome of this strategy is that you&#8217;ll not only reduce your overall debt but also improve your credit score.
2. Explore Budget-Friendly Mortgages and Aid for First-Time Buyers
For many individuals looking to purchase their first home in 2025, the key to making it affordable will be to take advantage of mortgage options designed for first-time buyers and to combine these with grants or other forms of assistance for the down payment.
If you&#8217;re concerned about having a large enough down payment, it&#8217;s wise to investigate the various financial products you might qualify for through agencies like the FHA or VA, your bank, or community-based organizations. These avenues could unlock crucial resources such as help with your down payment and programs designed for buyers with moderate to low incomes. It&#8217;s worth noting that traditional mortgages can require down payments as small as 3%, while FHA loans may only need 3.5%. In some cases, USDA and VA loans don&#8217;t require any down payment at all.
It&#8217;s also advisable to research lenders that offer specialized mortgage programs that include extra support. For instance, Rocket Mortgage provides a ONE+ mortgage where borrowers only need to put down 1%, with the lender contributing a 2% grant. Bank of America, another common choice for first-time buyers, offers several different types of assistance for down payments and closing costs.
3. Strategize the Timing of Your Purchase
The ideal time to buy a home varies for each individual based on their specific priorities, so it&#8217;s crucial to determine what&#8217;s most important to you. If securing the lowest possible mortgage rate is your top concern, it&#8217;s wise to closely monitor trends in interest rates and the overall economy. In 2025, rates are anticipated to decrease slightly, and the number of available homes should also increase, providing you with more options. However, you&#8217;ll likely face more competition from other buyers.
Purchasing a home during the slower seasons, such as fall or winter, can help you reduce competition and potentially negotiate a better price. However, the number of homes on the market is typically lower during these times, which might make it more challenging to find a property that meets all your requirements.
4. Take Your Time
Avoid feeling pressured to make quick decisions about what could be your most valuable possession and the largest financial commitment you&#8217;ll ever undertake. If you don&#8217;t feel completely prepared to buy a home in 2025, there&#8217;s absolutely no harm in waiting a while longer to save more money and further improve your credit.
5. Grow Your Savings
If you&#8217;re planning to buy a home in the near future, it&#8217;s crucial to save extra money now, whether you&#8217;re increasing your down payment fund or adding to your emergency savings.
When purchasing a house, you&#8217;ll need sufficient funds to cover both the down payment and closing costs, which can range from 2% to 5% of the total loan amount. While many mortgage options allow for smaller down payments, generally, the more money you can put down initially, the better your interest rate is likely to be. Additionally, offers with larger down payments often appeal more to sellers, giving you an advantage in such a competitive market.
The total cost of owning a home can frequently be higher than what many first-time buyers initially expect, particularly during the first year. Setting aside some additional funds to cover unforeseen expenses can help prevent you from incurring debt when you encounter your first significant housing-related bill.

Housing Market Outlook: Essential Insights For Buyers And Sellers

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As the spring 2025 housing selling season commences, several elements are anticipated to shape the market this year.
<h3>Expect mortgage borrowing costs to remain relatively high</h3>
While we anticipate a slight decrease in 2025, it won&#8217;t be significant. The current 30-year fixed rate average is about 7%. The projected average for the entire year will settle near 6.5%. In our assessment, mortgage rates are likely to hover between 6.0% and 7.0% for the foreseeable future, representing a new standard.
The effect of these elevated rates on monthly payments is substantial. For example, financing a $400,000 home with a 20% down payment at a 7.0% rate over 30 years would mean a monthly payment of $2,504. This is a difference of $692 compared to the $1,812 monthly payment for the same home a few years ago when rates were much lower, around 3.5%.
<h3>Housing Supply Shows Modest Improvement</h3>
Regarding the existing home market, there&#8217;s a positive development. The availability of existing homes for sale has finally begun to increase. Although still low historically, available listings in January were 16% higher compared to the previous year. We interpret this market trend as existing homeowners becoming more accepting of current higher mortgage rates. Previously, many were hesitant to move, as it would likely mean taking on a much higher mortgage rate than their existing one, a factor that seemed to significantly reduce market activity in recent years.
Existing home sales are widely anticipated to increase this year as more homes become available, but it&#8217;s important to note this forecast follows a very low point; 2024 sales totaled just 4.06 million, the lowest figure since 1995, according to the National Association of Realtors. Our overall projection is for existing home sales to rise by about 2% to 5% this year, with median prices expected to remain relatively flat (between 0% and a 5% increase). Elevated mortgage borrowing costs and high home prices continue to be the primary obstacles to existing home sales.
High mortgage rates have less impact on the new home market because builders can use strategies like buying down rates or offering upgrades to encourage sales. In 2024, new home sales rose by 2.4%, according to the Census Bureau, and median prices decreased by 1.2%, finishing the year at $420,166.
<h3>Home Price Growth and Equity Gains May Slow</h3>
Now that there are gradually more houses available for purchase, the rate at which home prices increase is expected to slow down. According to the National Association of Realtors (NAR), the average price of an existing house in 2024 was $405,267, which is a 4.5% rise compared to 2023. However, this overall annual increase doesn&#8217;t show the market trend of slowing price growth that occurred in the latter half of the year, as more properties became available. In the last three months of 2024, while the number of existing home sales rose by 7.3% compared to the same period the year before, the average home price actually decreased by 0.8%, as reported by the NAR.
The NAR anticipates slightly better conditions for the housing market this year. They predict that the number of existing home sales will increase by 7% to 12% in 2025, with a modest 2% rise in average prices. However, this prediction relies on the assumption that the cost of borrowing money for a mortgage will decrease. Specifically, the NAR forecasts that the average interest rate for a 30-year fixed mortgage will drop to around 6% from the current 7%, a decrease that we believe is too optimistic.
<h3>What to Expect from the Housing Market in 2025</h3>
Even though it&#8217;s still difficult for many people to afford homes, the general condition of the U.S. housing market appears strong. The balance between the number of homes for sale and the number of people wanting to buy should help keep property values stable in the coming years and also encourage the building of new houses.
Additionally, homeowners currently have a record amount of equity in their properties, which helps to boost their overall financial well-being. Considering the unmet demand for housing and the gradual increase in the number of homes being listed, we anticipate that the housing market will continue to positively contribute to the economy for a while.

2025 Housing Forecast: 3 Key Market Trends To Monitor

The US mortgage sector is currently facing difficulties, marked by rising interest rates and a decrease in the number of new loans being issued. It&#8217;s likely that demand for refinancing existing mortgages will remain low as long as interest rates stay near their current levels. However, the forecast for mortgages used to buy homes is somewhat more positive, with the volume of these loans anticipated to hold steady. Furthermore, the mortgage industry has seen significant changes over the last five years, as customers increasingly prefer digital interactions and non-bank lenders have gained market share at the expense of traditional banks.
This combination of a slow market and shifting consumer preferences creates a chance for companies to introduce innovative offerings that align with the main expectations of homebuyers. We will explore five key steps that financial institutions can take within the US home-purchase loan market. We will also propose potential strategies tailored for different categories of lenders: non-banks specializing in purchases, non-banks focused on direct consumer interaction, and traditional banks.
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<h3>Why Purchase-Centric Nonbanks Are Outpacing the Competition</h3>
Two types of non-bank lenders are navigating the current mortgage market downturn differently. Purchase-focused nonbanks, which depend on local loan officers with strong ties to real estate professionals and clients, are generally well-equipped to handle the challenging conditions. Their share of purchase mortgages among leading lenders has grown significantly since 2018, now standing at around 32 percent. In contrast, consumer-direct nonbanks traditionally rely on call centers and marketing efforts primarily for refinancing via outbound calls. To maintain their operational scale in the current market, these lenders urgently need to enhance their systems for originating purchase mortgages.
Banks face a varied situation in the mortgage market. Many have seen their mortgage activity decline significantly over the past five years, primarily because non-bank lenders often provide a better customer experience. This market trend, combined with financial pressures in early 2023, has led some regional and community banks to rethink their involvement, potentially simplifying operations or reducing their focus on mortgages.
Conversely, some banks focused on broader customer services and cost efficiency are considering outsourcing their mortgage processing and sales functions to external partners, leveraging their existing customer base for potential cost-effective collaborations, especially since many don&#8217;t actively market mortgages. A third group of banks has decided to invest further in the purchase mortgage sector, enhancing their data and digital capabilities to offer a stronger service in specific retail areas where they hold a competitive edge over non-banks.
Despite their established dominance in the purchase mortgage market giving them an edge during the current difficult period, purchase-focused nonbanks will need to remain highly alert to ensure long-term success. Industry leaders should proactively develop strategies to not only maintain but also expand their market share as competition intensifies. As lenders consider their competitive approaches within the purchase market, they may find it beneficial to review the essential actions outlined in the subsequent section.
<h3>Five Key Actions to Win in the Purchase-Mortgage Space</h3>
Competing effectively in the purchase mortgage sector requires focusing on several critical areas. According to 2023 research from McKinsey &amp; Co., among recent purchase-mortgage customers, borrowers primarily seek competitive interest rates, prompt confirmation of approval, outstanding service, and confidence in an on-time closing. It&#8217;s also vital for lenders to provide excellent experiences for real estate agents, as their influence can shape a borrower&#8217;s decision on which lender to choose.
Furthermore, the study highlighted the need for all types of lenders to reach a wider range of potential borrowers and enhance both the quality and frequency of interactions with customers, perhaps through tailored approaches and direct access to loan officers. These factors, which are key drivers of market leadership, suggest five essential actions for building a successful purchase mortgage operation.
Offer Early Approval Confidence to Buyers
Beyond securing the best interest rate, mortgage applicants prioritize confidence that their loan will be approved. Top lenders are setting themselves apart by using advanced underwriting models that go beyond the standard prequalification step. They can now offer instant approval to eligible borrowers, changing the process from simply inviting applications to effectively inviting acceptance of a loan.
Providing real-time conditional approval involves several stages: analytical assessment, creating an attractive offer, and delivering a customized invitation through suitable channels. This entire process relies heavily on sophisticated data and analytics capabilities to efficiently process large amounts of data.
To enhance offers, lenders should gather data from internal and external sources beyond borrower submissions. Although income, assets, credit score, and debt are traditionally requested from applicants, much of this data can be automatically sourced elsewhere to refine risk assessment and underwriting.
Following the initial assessment, lenders must develop a concrete underwriting proposal that fits their risk parameters. The ability to access and process diverse data sets allows for the creation of highly customized messages, sent proactively to potential customers or in response to queries.
A compelling way to improve the mortgage offering is to guarantee early in the process that financing for closing will be available (within limits and with proper documentation). This innovative early guaranteed approval, already implemented by some lenders using analytical models, fundamentally challenges the standard purchase mortgage approach. While gaining a crucial edge through early speed and certainty, this business model demands substantial shifts in technology, required skills, and operational practices.
Use Data Intelligence to Strengthen the Sales Funnel
Today, a little more than half of individuals seeking a mortgage consider only one financial institution, and borrowers typically reach out to just 1.7 lenders for information. This market trend highlights the critical need for mortgage providers to identify and connect with the widest possible pool of qualified potential customers. To increase the likelihood of being considered by borrowers, lenders can utilize &#8220;next-product-to-buy&#8221; analytical tools. These models are useful not only for spotting customers who are beginning their home search but also for helping loan officers build connections with those likely to meet lending requirements.
Banks possess inherent advantages like established relationships and extensive customer data, enabling them to create personalized, competitive offers with accurate risk assessments. However, despite these data assets, banks lag behind non-banks in turning customer interest into completed applications; only 60% of those considering a bank mortgage apply, compared to 75% for non-banks. Banks need to streamline the application process, as current slow responses and burdensome document requests significantly reduce borrower satisfaction.
While non-bank lenders excel at converting interested customers into completed applications, they are less effective at initiating contact with potential borrowers. Furthermore, non-banks typically do not possess the extensive historical customer data that traditional retail banks have. To compensate for this and ensure a consistent flow of high-quality sales leads, non-banks should invest in their data and analytics infrastructure.
Craft a Strong Value Proposition for Real Estate Partners
A quarter of borrowers consider a lender suggested by their real estate agent, making agents a key referral source second only to the borrower&#8217;s existing bank or financial institution. It&#8217;s significant market trend that real estate agents recommend non-bank mortgage companies twice as frequently as banks. Agents favor non-banks for reasons such as a reputation for closing loans on time, more expert loan officers, greater process transparency, and relatively streamlined customer journeys. Recognizing non-banks&#8217; strengths in these areas, retail banks ought to consider creating a compelling value proposition designed to alleviate real estate agents&#8217; pain points.
Deliver Customer Experiences That Inspire Loyalty and Advocacy
recommendations from friends, family, and colleagues represent another key source of mortgage referrals, particularly when borrowers are highly satisfied with every step of the lending process. However, very few mortgage providers manage to create truly unique experiences. Furthermore, borrowers evaluating lenders and options express the lowest satisfaction with the early stages of exploring products and rates and making pre-application inquiries.
Document collection is another area customers find particularly challenging and has consistently ranked as one of the top factors affecting satisfaction. Satisfaction declines sharply after the second request for additional materials, yet lenders average three requests per customer despite recent streamlining efforts. When redeveloping customer interactions, document collection should be among the first areas targeted for maximum personalization. For instance, lenders could auto-fill application fields using internal and external data and customize required document lists for each borrower to minimize the need for sourcing or clarifying unnecessary items.
Integrate Live Consultations Into Remote Buyer Journeys
Digital platforms have become the dominant method for mortgage lending, with two-thirds of recent homebuyers expressing comfort with completing the entire process digitally. Although actual digital usage hasn&#8217;t fully caught up to this comfort level, it has passed a significant milestone: over half of 2023 mortgage applicants completed the entire transaction via a lender&#8217;s website or app, a considerable rise from roughly a third in 2018.
This growth isn&#8217;t surprising, given that comfort with digital-only processes was already high in 2018. Most customers now use digital for various steps, and the percentage uncomfortable with digital has drastically decreased from 12% in 2018 to 3% in 2023.
Despite the digital shift, live consultations remain vital; one-third of customers still want phone or in-person options. Hybrid interactions combining in-person and remote contact consistently yield higher customer satisfaction (65%) than purely remote ones (55%). Lenders should note that satisfaction with loan officer interactions (mostly remote or hybrid) increases with frequency, particularly during the exploration phase.
<h3>Success Requires Investment in Modern Capabilities</h3>
The growth in market share experienced by purchase-focused nonbanks is largely attributed to their strong local presence and their ability to provide top-tier experiences for both homebuyers and real estate agents. However, despite the relative success of these non-banks in certain areas, virtually no mortgage lender, regardless of their size or operational model, has successfully developed a truly unique value proposition.
Creating distinctive new offers in the purchase mortgage market could yield significant long-term advantages for lenders and help them better compete for business in the current market cycle. Furthermore, lenders who significantly invest in advanced analytics and automated processes stand to potentially decrease expenses, accelerate decision-making, minimize errors, and achieve more accurate underwriting results.
Leaders looking to refine their strategy for the purchase mortgage market can begin by considering the following points, tailored to the unique starting positions of purchase-focused nonbanks, consumer-direct nonbanks, and banks.
Purchase-focused nonbanks
A key challenge for this group is that fewer borrowers initially consider them. To boost their chances of being the first point of contact, they might invest in bolstering their sales pipeline. This requires building data and analytics capabilities for early customer identification and engagement and using digital marketing for tailored campaigns. Improving underwriting to offer firm approvals earlier in the process is also advisable for these nonbanks to maintain competitiveness across the market.
Consumer-direct nonbanks
While successful in refinancing, consumer-direct nonbanks haven&#8217;t gained ground in the purchase market using their standard phone-based approach. Attracting homebuyers demands a new model driven by analytical lead generation, where loan officers cultivate prospects and build ties with real estate agents. Besides addressing the five key imperatives, these lenders may need to create separate teams for refinancing and purchase activities, with distinct roles and incentive structures. For substantial purchase business growth, consumer-direct nonbanks could explore establishing or acquiring a physical presence in target markets, which requires a major strategic shift and hiring experienced local loan officers to build local relationships.
Banks
For retail banks, the strategy should involve improving areas where they trail purchase-focused nonbanks. The priority is to utilize data from current customer relationships to both offer early certainty of loan approval and enhance the conversion rate from initial interest to submitted application. Effective loan officers providing consistent follow-up are crucial to a customer&#8217;s decision; banks could potentially increase sales by equipping these frontline staff with AI-powered engagement tools. Referral rates could also be improved by making customer journeys smoother and by offering a more appealing value proposition to real estate agents.
Furthermore, 30 to 40 percent of borrowers prefer a single provider to manage the entire home-buying process. This presents an opportunity for banks to create an ecosystem of housing-related services—covering aspects like financing, renovation, warranties, and utilities setup—and to empower loan officers to discuss broader financial wellness and other banking services with customers.
<h3>Final Thoughts</h3>
Lenders willing to take bold and timely action have the chance to establish and maintain a leading position in the purchase mortgage sector. The key to achieving this lies in executing five crucial strategies: 1) Offer eligible borrowers early certainty regarding loan approval, 2) Utilize data and analytics to generate quality leads and assist loan officers in relationship building, 3) Develop an appealing value proposition specifically for real estate agents, 4) Deliver exceptional experiences to customers, and 5) Ensure live consultations are a seamless part of remote interactions.
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Strategies To Drive Growth In The Purchase-Mortgage Market

The housing market showed signs of increased activity in February, with both the sale of existing homes and the construction of new homes on the rise. This offered a hopeful indication for a housing market that has faced challenges for some time. Prior to February, weather conditions had caused a slowdown in activity. However, the number of existing homes available for sale remains limited, which continues to keep overall home sales figures lower. While the average interest rate for a 30-year mortgage has slightly decreased in recent weeks, it is still significantly higher than it was in early 2022.
<h3>High mortgage interest rates are putting a brake on the housing market</h3>
While the sale of pre-owned homes saw a recovery in February 2025 after a dip in January, rising by 4.2% to an annualized rate of 4.26 million homes, this pace is still quite low historically. Furthermore, February&#8217;s sales rate was lower by 1.2% than February of the previous year. The continued high cost of borrowing for a mortgage is restricting activity in the housing market. Many current homeowners are locked into mortgages with an average interest rate of around 3.5%, which is approximately 3% lower than the current rate for a 30-year mortgage.
The National Association of Realtors reports that the supply of existing homes for sale recently increased to a 3.5-month supply, and this level remained the same in February. The limited number of existing homes available has contributed to consistently high housing prices. Higher interest rates are making homeowners with low-rate mortgages hesitant to sell and buy a new home. The fundamental issue is the need for more homes to become available on the market.
The number of privately-owned homes builders began constructing in February 2025 saw a 15% increase compared to January. Although this is a positive development, the rate at which new homes are being started is still lower than it was during the same period last year. Furthermore, the outlook among homebuilders, which can suggest when the supply of new homes might increase, is currently pessimistic. It seems that builders are presently reacting to a decrease in potential buyer activity, possibly due to weather-related problems at the beginning of 2025. Nevertheless, it appears that individuals looking to purchase new homes are still active in the market, searching for the right moment to buy.
A significant challenge involves uncertainties within the market as new policies from the Trump administration are introduced. There is considerable unknown about how various policies could affect the job market, interest rates, and the availability of building materials over the next three to six months. For instance, stricter immigration enforcement could lead to a reduction in the construction workforce. Tariff policies have the potential to inflate the costs of building supplies. Additionally, interest rates might increase if inflation becomes a significant concern once again.
<h3>How Federal Reserve Actions Affect Mortgage Interest Rates</h3>
Typically, the interest rates on mortgages are higher than the returns offered by the benchmark 10-year Treasury note. The slight decrease observed in mortgage rates during 2025 generally followed the fluctuations in the yield of the 10-year Treasury bond. Currently, mortgage rates reflect the yields in the bond market, but they also include a noticeably large difference between the yields of 10-year U.S. Treasury notes and mortgage rates. Actions taken by the Federal Reserve contribute to these elevated mortgage rates. Because the Federal Reserve is not currently purchasing mortgage-backed securities, private investors need to fill that role. This leads to less demand for these securities, which keeps the difference between mortgage rates and Treasury yields higher.
<h3>Home values have seen a slight upward trend</h3>
While the Case-Shiller home price index showed that housing prices reached record peaks by the middle of summer in 2024, they did decline between August and December. However, this drop was relatively small, nearly 1% lower than the index&#8217;s highest point. In January, the Case-Shiller index showed a modest increase. Data from the real estate brokerage Redfin indicates that the median monthly mortgage payment in January 2025 was $2,793, just a few dollars shy of the all-time high. The combination of high mortgage interest rates and increased home prices continues to make housing affordability a significant challenge.
<h3>REITs Show Promise in Early 2025</h3>
To achieve greater variety in their investment portfolios, some investors choose to invest in real estate investment trusts However, in recent years, their performance has been weaker than the broader stock market. For example, the S&amp;P Developed REIT index showed an average annual gain of only 1.59% over the five years leading up to the end of 2024, significantly less than the S&amp;P 500 index&#8217;s 14.53% annual return during the same period. However, in 2025, REITs have shown some recovery, yielding a 1.95% return so far this year, in contrast to the S&amp;P 500&#8217;s -1.63% return.

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How Shifting Interest Rates Are Affecting Today’s Housing Scene

As spring progresses, the housing market continues to present difficulties for those looking to buy a home. Buyers are still facing hurdles due to historically high home values and persistently elevated mortgage rates. However, there are some encouraging developments, such as a slower pace of increase in home prices and a slight decline in mortgage rates.
Despite these improvements, it&#8217;s anticipated that the high expenses associated with owning a home will likely persist in the near future. These elevated costs are partly influenced by government policies, specifically related to tariffs and immigration, which are predicted to potentially fuel inflation and drive up expenses for home construction.
<h3>What to Expect in the Housing Market in 2025</h3>
According to the latest S&amp;P CoreLogic Case-Shiller Home Price Index, which tracks values for single-family residences, U.S. home prices saw an annual increase of 4.1% in January, a slight rise from the 3.9% yearly growth recorded in December. While home values are still climbing, the speed of this increase has lessened. Many experts anticipate this deceleration will continue as more homes become available on the market and mortgage rates stay elevated.
Although this slower rate of home price appreciation won&#8217;t make homeownership significantly more affordable for numerous prospective buyers, regional differences in the market offer a degree of optimism. Some areas remain more accessible financially than others. For instance, while parts of the Midwest experienced notable price increases, the surge in home values there during the pandemic was not as sharp as in other regions. Consequently, several local markets within the Midwest continue to be among the more budget-friendly options for individuals looking to purchase a home.
<h3>Is a Housing Market Collapse Likely in 2025?</h3>
Given that home prices are reaching new peaks and continuing to climb in many areas, you might worry about the possibility of a housing bubble ready to burst, similar to what happened during the financial crisis of 2008. However, as forecasts look toward 2025, the probability of a widespread housing market crash – defined as a sharp decline in overly high prices due to reduced buyer interest – is considered low.
Market analysts are quick to highlight key differences compared to the period following the 2008 crisis, noting that today&#8217;s homeowners are in a significantly more stable financial position. Many currently hold considerable equity in their homes. Furthermore, an unprecedented number of homeowners own their properties outright, without a mortgage. These factors contribute to a less vulnerable market than the one that preceded the downturn in 2008.
<h3>Estimating 2025 Mortgage Payments for New Buyers</h3>
Based on Zillow&#8217;s figures, the average cost of a home in February 2025 was approximately $357,000. For a buyer who made a 20% down payment and secured a 30-year fixed mortgage at the average rate of 6.76% during the final week of February, the monthly payment covering principal and interest would be $1,854.
This can be compared to someone who bought a similar home in February 2024. At that time, the typical home price was around $348,000 and the average mortgage rate was slightly higher at 6.94%. Their monthly principal and interest payment amounted to $1,841. While the current monthly payment is only $13 more, this difference accumulates significantly over a 30-year period, totaling nearly $7,200 in extra mortgage expenses. This illustrates how even a small reduction in the mortgage interest rate can result in considerable savings during the loan term.
<h3>Prospects for a Housing Market Rebound in 2025</h3>
For the housing market to genuinely recover, at least two main factors need to improve. Ideally, we would first see a significant increase in the number of homes available for sale. This greater supply would help to lessen the upward pressure on home prices, potentially causing them to stabilize or even decrease slightly from their current high points.
Additionally, mortgage interest rates need to decrease. Rates have consistently remained above 6.5% for several months, but experts are optimistic about some potential improvement throughout the year, particularly if the Federal Reserve lowers its benchmark interest rate, which could incidentally cause lower mortgage rates.
However, there&#8217;s a cautionary note: if rates fall too rapidly, it could trigger a sharp increase in buyer demand, potentially offsetting any gains in housing inventory and causing home prices to rise sharply again. While a return to a more typical range for mortgage rates, perhaps between the upper 4% and lower 5%, would be beneficial for the market, it is anticipated that reaching those levels may not happen in the immediate future.
<h3>Data on Existing, New Construction, and Under Contract Home Sales</h3>
Existing Homes
As the busiest period for home buying begins, initial indications of increased activity are starting to emerge. However, it remains uncertain whether this signifies the housing market is shaking off its prolonged slowdown or if high interest rates and home prices, coupled with economic uncertainty, will continue to deter both buyers and sellers.
Looking at existing-home sales, which cover completed sales of various residential properties like houses, townhouses, condos, and co-ops, there was an increase in February. This coincided with a gradual decrease in mortgage rates, which reached 6.76% by the end of the month. According to the most recent data from the National Association of Realtors, monthly sales of existing homes rose by 4.2%, reaching a seasonally adjusted annual rate of 4.26 million, up from 4.08 million the previous month. Despite this monthly uptick, sales were still down 1.2% compared to the same time last year, and overall market activity has stayed at its lowest point in three decades over the past two years.
Regarding the supply of homes available for resale, inventory saw a notable rise, increasing by 5.1% from the previous month and a substantial 17% compared to the same time last year. Based on the current speed of sales, the supply of unsold existing homes is currently at 3.5 months. Experts generally view a market as balanced when there is a four to six-month supply of homes.
Simultaneously, home values are also trending upwards. The national average price for a previously owned home increased by 3.8% from a year ago, reaching $398,400. This marks the twentieth consecutive month that prices have been higher than the year before. All four primary regions across the United States recorded an increase in their median home prices.
New Sales
New home sales rebounded in February following a slower January, seeing a monthly increase coinciding with a drop in mortgage rates. Data released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development shows that sales of newly built single-family residences rose by 1.8% from January and were 5.1% higher than in February of the previous year.
The supply of new homes currently stands at an 8.9-month supply, which is considered ample. However, tariffs are increasing construction expenses for builders, which is expected to result in a slowdown in new building projects and a reduction in the available stock of new homes. Despite this, if the supply of existing homes for sale continues to grow, builders of new homes will likely need to stay competitive, potentially leading to lower prices or more incentives offered to buyers. Approximately 10% of all home sales are made up of newly constructed properties.
Pending Sales
The Pending Homes Sales Index from the NAR saw a 2% increase in February. This suggests that a slight easing of mortgage rates was sufficient to motivate some potential buyers who had been waiting to enter the market. A pending home sale is recorded when a buyer and seller come to an agreement on the price and conditions of a purchase, serving as an indicator of existing home sales that are likely to close in the subsequent one to two months.
Nevertheless, pending transactions for the year are down by 3.6%, and the overall level of activity remains exceptionally low, indicating that the majority of potential buyers are still unable to participate in the market.
<h3>Could Spring Bring More Favorable Conditions for Homebuyers?</h3>
Even though there are slight indications of house prices and mortgage rates becoming more manageable, other recent information presents a challenging situation, particularly for individuals with lower incomes.
An analysis from Attom for the first quarter of 2025 revealed that 97% of counties in the US find purchasing a median-priced home is less affordable compared to historical standards. The report also indicated that 32% of homeowners&#8217; incomes are allocated towards housing costs. This is above the 28% income percentage that lenders typically prefer, and spending over 30% is considered a sign of being burdened by housing expenses.
Recent data from Zillow concerning the housing market shows a dramatic increase in monthly mortgage payments, which have jumped by more than 113% since the start of the Covid-19 pandemic. When you factor in extra costs such as property taxes and homeowners&#8217; insurance, it becomes evident why buying a home remains financially out of reach for many people.
<h3>Forecasting Inventory Levels and Their Impact on Home Prices</h3>
Even with a recent rise in both previously owned and newly built homes coming onto the market, the total number of homes available for sale is still considerably lower than historical norms. Several challenges suggest that a significant shortage of housing inventory is likely to persist for a while.
A major reason for this ongoing scarcity is that many existing homeowners are hesitant to sell. They are currently benefiting from exceptionally low mortgage rates and are unwilling to trade them for the higher rates prevalent in today&#8217;s expensive housing market. This situation means that the number of people looking to buy continues to exceed the number of homes available, a trend expected to last until mortgage rates decrease enough to reduce this &#8220;lock-in&#8221; effect.
In an effort to boost housing supply and lower expenses, President Trump issued a directive favoring the reduction of building regulations and making some federal land available for building homes. Conversely, other policies from the administration, including the imposition of tariffs and stricter approaches to immigration, have started to drive up the costs associated with constructing new homes.
<h3>Sinking Builder Sentiments</h3>
Ongoing economic instability and the implementation of tariffs, which have started to inflate the expenses faced by construction companies, are causing a decline in builder sentiment. The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) indicates a drop in builder confidence from 42 in February to 39 in March. An index score above 50 suggests that a majority of builders anticipate favorable conditions for new home construction in the near future.
Builder optimism had been gradually improving since September, coinciding with the Federal Reserve&#8217;s initiation of interest rate reductions. Nevertheless, the ambiguity surrounding potential tariffs and the lack of significant progress in controlling inflation are negatively affecting builders&#8217; expectations. Construction firms are still dealing with high costs for building materials, a problem intensified by tariff policies, alongside other supply-related difficulties such as a scarcity of available workers and building lots. These increased costs are significant and are unwelcome news for potential homebuyers already grappling with affordability challenges.
<h3>More New Homes Started and Finished Lately, But Trouble May Be Brewing</h3>
Even though builders are feeling less optimistic, the number of new single-family homes being started and finished actually increased recently. However, the fact that these numbers are still lower than they were a year ago might indicate that the housing market could be slowing down soon. Data from the U.S. Census Bureau and HUD shows that the number of housing starts went up by 11.4% in February compared to the previous month, but it was 2.3% lower than in February of last year. At the same time, the number of new homes completed rose by 7.1% from the previous month but was 1% less than in January 2024.
Nevertheless, even with fewer homes completed compared to the previous year, this recent monthly increase could bring some encouragement to potential buyers as they head into the spring home-buying season.
<h3>What Experts Predict About Foreclosure Rates Next Year</h3>
According to figures from Attom, lenders initiated the foreclosure process on 22,730 properties across the nation in February. This represents an 8% increase compared to January and a 1% rise from the same time last year. Similarly, the number of completed foreclosures, which result in properties becoming real estate-owned (REO), showed a similar pattern. REO properties increased by slightly less than 2% compared to the previous month but were 11% lower than the number recorded a year prior. REOs are properties that did not sell during foreclosure auctions and were subsequently taken over by the mortgage lenders.
Economists Still Watching Economy for Foreclosure Clues
Those tracking foreclosure trends are closely observing various economic indicators. Despite the fact that foreclosure activity is still at historically low levels, the recent increase in foreclosure starts has prompted real estate analysts to remain watchful for economic factors that could potentially create difficulties in the housing market.
Attom&#8217;s data indicates that foreclosure activity in 2024 was 35% lower than the levels seen in 2019, before the COVID-19 pandemic significantly altered the housing market. Furthermore, foreclosure filings last year were almost 90% lower than in 2010, when they reached a peak of nearly 2.9 million.
Substantial Home Equity Levels Continue to Mitigate Foreclosure Risk
A major reason why foreclosure rates are relatively low right now is that homeowners, even those facing foreclosure, have a record amount of equity in their homes. Data from the Federal Reserve Bank of St. Louis shows that the total value of homeowners&#8217; equity increased by about $2.8 trillion between the last three months of 2023 and the same period in 2024. This brings the total amount of homeowner equity to almost $35 trillion, which is roughly $22.2 trillion higher than it was five years ago, representing an increase of nearly 45%.
This surge in equity has also increased the proportion of &#8220;equity-rich&#8221; mortgages, meaning the amount owed on the mortgage is 50% or less of the home&#8217;s current value. More than 47% of homes with mortgages were considered equity-rich in the last quarter of 2024. In comparison, this figure was only 26.5% in early 2020.
<h3>Is 2025 Favorable for Homebuyers?</h3>
Purchasing a home is a deeply individual choice, regardless of the prevailing market conditions. Given that a house typically represents the most substantial single expenditure in a person&#8217;s life, it&#8217;s essential to have a strong financial foundation before making such a commitment.
While using a mortgage calculator can help you estimate your monthly housing expenses based on your initial payment, relying solely on predictions for the year 2025 is likely not the most effective approach to home buying, according to experts.
The ideal moment for potential buyers to act is when they discover a property they like, that suits their family&#8217;s present and future requirements, and that falls within their budget. It&#8217;s challenging to advise prospective homeowners to delay their purchase in anticipation of more favorable circumstances. Generally, home prices tend to increase over time, making it progressively harder to save for a down payment. Furthermore, there&#8217;s no certainty that future market conditions will be significantly better overall than they are today.
<h3>Smart Strategies for Buying Property Now</h3>
Here&#8217;s some expert advice to improve your chances of a successful home purchase in today&#8217;s competitive housing environment.
First, understand your financial limits. Rather than just looking at the listing price, calculate the maximum monthly payment you can comfortably manage. This monthly housing expense is determined by several factors, including the home&#8217;s price, your initial down payment, the interest rate on your mortgage, the loan&#8217;s duration, home insurance costs, and property taxes.
Second, consider being open to different home sizes and locations. For instance, your budget might allow for a smaller property in your ideal neighborhood or a larger, more modern home in a more distant area. By identifying your priorities and maintaining some flexibility, you can act swiftly when a suitable property becomes available.
Third, stay informed about the specific housing market where you intend to buy. Research the number of homes currently for sale and their price ranges. Additionally, observe how quickly properties are being sold. This will not only alert you to promising new listings but also give you more confidence when deciding to purchase a fairly priced home. A real estate agent can provide valuable assistance with this research.
Finally, don&#8217;t get disheartened. Buying a house is a major financial undertaking. Approaching the market with assurance, equipped with reliable information and realistic expectations, will be beneficial. Avoid letting the fast pace of the market pressure you into buying a home that exceeds your budget or doesn&#8217;t align with your lifestyle.
<h3>Effective Strategies for Today&#8217;s Home Sellers</h3>
If you&#8217;re planning to sell your house in the current real estate climate, here&#8217;s some helpful advice.
First, investigate the prices of similar homes in your neighborhood. It&#8217;s crucial for sellers to have the latest information on what comparable properties are selling for in their local market. Understand who your competition is and price your home strategically. Also, be aware that in certain price ranges, buyers have more leverage, so you should be ready to negotiate.
Second, ensure your home is in excellent condition. To stand out and create a strong positive first impression online, your property needs to be in great shape. Buyers are particularly drawn to well-maintained homes with appealing front yards.
It&#8217;s also wise to collaborate with a real estate expert who knows your local area well. A skilled agent or team that actively markets properties locally and has access to popular real estate websites can offer considerable benefits and assist you in achieving a good selling price.
Finally, address any necessary repairs or improvements promptly. By preparing your home and fixing any issues, you can eliminate potential concerns for buyers and allow them to focus on the positive aspects of your property.

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2025 Housing Outlook: When Might Home Values Decline?

Mortgage rates are projected to remain high for some time, which could influence the decisions of both buyers and sellers. Still, many people will continue to move for various reasons—whether it&#8217;s to find a better job opportunity or to transition into a smaller home for retirement. If you&#8217;re thinking about buying or selling in 2025, it&#8217;s important to understand how current conditions might affect your plans.
<h3>Buyers: Holding Out for Lower Rates Might Cost You</h3>
While waiting for rates to drop might seem like a smart move, it doesn’t always lead to better results in the housing market. A recent U.S. News survey from March 2025 found that 80% of potential homebuyers are delaying their purchases in hopes of lower mortgage rates, with 25% saying they won’t buy until rates fall below 5%. However, such low rates aren’t expected anytime soon. Meanwhile, home prices have continued climbing. Since early 2022, property values have increased by 15%, according to the S&amp;P CoreLogic Case-Shiller Home Price Index—even as mortgage rates have roughly doubled.
While the housing market is predicted to become more balanced this year, buyers shouldn’t count on a major nationwide drop in home prices. Several leading real estate organizations have released projections showing modest price increases in the coming years. Fannie Mae expects prices to climb by 4.1% during 2025 and another 2% in 2026. The Mortgage Bankers Association (MBA) forecasts a smaller rise of 1.3% in 2025, with slight increases of 0.3% in both 2026 and 2027. The National Association of Realtors (NAR) predicts a 3% rise next year, followed by 4% in 2026. Realtor.com anticipates a 3.7% rise in existing home prices in 2025, and Zillow expects a 2.6% growth.
Although these numbers suggest that sharp price hikes are behind us, significant declines are also unlikely. That said, buyers may benefit from a less frantic market than in previous years, with fewer bidding wars and a wider selection of homes available.
This year might not completely shift in favor of buyers, but the housing market is expected to move toward a more even playing field between buyers and sellers. As a result, homebuyers may have more flexibility to include standard safeguards—like inspection and appraisal clauses—without feeling pressured to skip them just to secure a deal. In addition, with mortgage rates slowly declining, some homeowners who had been holding off on selling may finally decide to list their properties, slightly improving the supply of existing homes.
Meanwhile, new construction could present additional opportunities. Many current homeowners are still holding onto low interest rates and may be hesitant to sell, but builders are motivated to complete sales. As the inventory of newly built homes grows, buyers may face less competition in that space. While these homes usually come at a premium, builders might be open to sweetening the deal with incentives such as price cuts or limited-time interest rate reductions.
<h3>Sellers: Consider Your Future Prospects as Buyers</h3>
Homeowners thinking about selling should keep in mind that they’ll likely be buyers too, which presents its own set of challenges. The biggest issue for many is the need to find a new home in today’s market, where both prices and interest rates remain high.
Data from the Federal Housing Finance Agency shows that the average mortgage rate on current loans is around 4.3%, which is significantly lower than what’s available for new buyers right now. In fact, about 83% of homeowners are locked into mortgages with rates under 6%. Since interest rates are not expected to fall below that level anytime soon, many sellers may hesitate to give up their current low-rate loans, making it harder to transition into a new home affordably.
Even though many homeowners are reluctant to give up their ultra-low mortgage rates—often below 3%—experts believe this hesitation won’t last forever. Over time, more people may decide that waiting indefinitely to move isn’t worth the trade-off.
Interestingly, a 2023 survey from Fannie Mae found that low interest rates aren’t the only reason people are staying put. While 21% of respondents cited their low mortgage rate as the main reason for staying in their current home, 19% said they simply enjoy where they live, and 13% pointed to high home prices as the deterrent.
There is a potential upside for sellers, though: many have built up significant home equity due to the rapid rise in home values since 2020. This built-up equity can help fund their next home purchase, even in a higher-rate market.
<h3>Mortgage Refinancing Predictions</h3>
The outlook for mortgage refinancing rates is similar to that of purchase rates—they’re expected to stay relatively high through 2025 and 2026, with no return to the exceptionally low rates seen during the pandemic. For most homeowners who already have lower interest rates, refinancing now wouldn’t result in savings.
However, homeowners who purchased their properties in 2022 or 2023, when rates were much steeper, may have more reason to consider refinancing down the line. According to a U.S. News survey from September 2024, 84% of recent buyers are planning to refinance when rates improve. Over half of them are waiting for rates to fall below 5%, a level that may not be reached for several more years.
That said, refinancing isn’t always just about securing a lower rate. For example, rate-and-term refinancing allows homeowners to shorten their loan term—say, switching from a 30-year to a 15-year mortgage. This can reduce the total interest paid over time and help homeowners build equity faster, though it typically comes with higher monthly payments.
Homeowners might consider refinancing their mortgage for a couple of key reasons. One motivation is to move from an adjustable-rate mortgage (ARM), where the interest rate can change periodically, to a fixed-rate mortgage. This switch provides stability in monthly payments, making it simpler to manage household finances, as the payment won&#8217;t increase when interest rates go up. However, fixed rates are typically higher than initial ARM rates, so this change might not be advantageous unless your ARM rate is expected to see a significant jump. If you anticipate interest rates falling in the future, keeping your current ARM might be preferable for the time being.
Another reason some homeowners refinance is to access the equity they&#8217;ve built in their home. A cash-out refinance involves taking out a new mortgage for a larger amount than what is currently owed, allowing the homeowner to receive the difference in cash. This option becomes available if your property&#8217;s market value has increased substantially or if you have paid down a considerable portion of your existing loan. It&#8217;s important to remember, though, that this means taking on a larger debt and consequently paying more in interest over the life of the loan, potentially at a higher interest rate than your original mortgage. Often, obtaining cash through a home equity loan or a home equity line of credit (HELOC) can be a more cost-effective alternative over the long term compared to a cash-out refinance.

the-percentage-symbol-for-increasing-interest-rates-on-stacks-of-coins-and-the-model-house.-Interest-rates-increase,-home-loan,-mortgage,-house-tax.-investment-and-asset-management-concept

What Homebuyers And Sellers Should Know About The 2025 Housing Market

Over the past couple of years, mortgage rates have climbed significantly, making it more expensive for people to buy homes or borrow against the value of their homes. This rise partly reflects the general increase in long-term U.S. Treasury yields. However, since early 2022, 30-year fixed mortgage rates have gone up more than expected compared to long-term Treasury rates. This unusual gap suggests that short-term, temporary factors might also be driving mortgage rates higher. If the outlook for future interest rates becomes clearer, mortgage rates might drop by about 0.25 to 0.5 percentage points. If Treasury yields maintain its levels, mortgage rates continue to stay high even if the gap between them shrinks.
So why has the gap between mortgage rates and 10-year Treasury yields widened so much? About half of the increase is due to two main reasons. First, short-term Treasury rates—those for bonds maturing in less than 10 years—are currently higher than 10-year Treasury yields. This matters because most mortgages don’t last the full 30 years; they are often paid off or refinanced within a decade. Second, there&#8217;s greater uncertainty about where interest rates are headed in the future, which has increased the risk that homeowners will pay off mortgages early—a risk known as prepayment risk. This risk makes mortgage lending more expensive.
These two factors are likely to keep mortgage rates elevated in the near future. Reduced investor interest in mortgage-backed securities has also contributed to the wider gap between mortgage and Treasury rates, and that trend is expected to continue.
<h3>Drivers of the Mortgage-Treasury Spread</h3>
Mortgage rates represent the cost of borrowing to buy a home or use the equity in one. Because of this, they play a key role in determining the overall price of housing and how much homeowners&#8217; property is worth. When the Federal Reserve raises interest rates as part of its effort to slow inflation, mortgage rates tend to go up too. This increase is one of the main ways that higher interest rates can cool down the economy.
Over the past four decades, both mortgage rates and the yields on 10-year Treasury bonds have generally declined. Mortgage rates usually follow the direction of 10-year Treasury bond rates since both are long-term financial instruments and mortgage risk tends to be relatively stable. However, mortgages come with slightly more risk for investors, so their interest rates are typically one to two percentage points higher than Treasury yields.
Since mid-2020, rising Treasury bond rates have pushed mortgage rates up as expected. But starting in early 2022, mortgage rates began increasing much more than Treasury yields alone would suggest. This unexpected jump has made it harder for people to borrow, putting extra pressure on the housing market. The gap between mortgage rates and Treasury bond yields can shift due to several factors, such as changing credit conditions and growing uncertainty about future interest rates.
During the housing crisis, the gap between 30-year fixed mortgage rates and 10-year Treasury yields reached a high of 2.9 percentage points. This reflected tight credit conditions and major disruptions in the financial markets that support mortgage lending. A similar spike happened during the COVID-19 pandemic, with the spread hitting 2.7 percentage points in 2020. This time, the causes were shorter-term financial market disruptions and uncertainty among lenders and investors in mortgage-backed assets. More recently, the gap between mortgage rates and Treasury yields has grown again, reaching levels not seen since the housing crisis. Since October 2022, the spread has remained unusually wide.
To better understand why this gap is so large, it helps to break it into three parts:
<ol>
<li>Primary-secondary spread: This is the difference between the borrowers’ mortgage rate and the return on mortgage-backed securities. When the costs of issuing mortgages are steady, this gap stays fairly consistent.</li>
<li>Prepayment risk and duration adjustment: Mortgages typically don’t last a full 30 years—many are paid off or refinanced earlier, often within about 7 years. Because of this, mortgage rates are more aligned with shorter-term Treasury bonds. There’s also the risk that borrowers will refinance if interest rates fall, which adds to the cost for investors. This combination of refinancing risk timing increases the spread.</li>
<li>Option-adjusted spread: This is what&#8217;s left after accounting for prepayment risk. It reflects changes in how much demand there is for mortgage-related investments. When demand is low, this part of the spread grows.</li>
</ol>
<h3>What&#8217;s Pushing Mortgage Rates Higher?</h3>
About half of the increase in the gap between mortgage rates and 10-year Treasury yields as of October 2023, compared to pre-pandemic levels, can be traced back to two key factors: the adjustment for mortgage duration and the risk of early loan payoff, also known as prepayment risk.
Mortgages are usually not held for the full 30 years; most are paid off or refinanced within a shorter period, often less than 10 years. This shorter holding period means that mortgages behave more like shorter-term bonds in terms of interest rate sensitivity. An unusual situation occurred beginning in early 2022, 7-year Treasury rates were higher than 10-year Treasury rates. This was a first since 2000. This flipped a typical pattern: between 2015 and 2019, the 10-year yield was generally about 0.15 percentage points higher than the 7-year. But by October 2023, the 7-year rate had almost caught up to the 10-year rate. This shift in the relationship between the two rates accounts for roughly 0.2 percentage points of the unusually wide spread between mortgage and Treasury rates.
On top of that, prepayment risk has grown. When interest rates rise, people with existing mortgages tend to keep them, since their loan terms are better than what new loans would offer. But if rates drop, many will refinance to take advantage of lower costs. So when there’s more uncertainty about where interest rates are headed—even if the uncertainty is balanced—it increases the chance that more people will refinance. This added risk makes mortgage investments less predictable, which contributes to higher mortgage rates today.
Currently, interest rate uncertainty—measured by indicators like the MOVE Index—is higher than it was before the pandemic. When rates were extremely low, such as during early 2020, there wasn’t much room for them to drop further. Because of that, both borrowers and lenders saw little chance that a mortgage could be refinanced at an even lower rate. But now that mortgage rates are higher, there&#8217;s more room for them to fall in the future, increasing the likelihood that borrowers will refinance if rates decline. This creates more risk for lenders, who may lose money if a borrower refinances at a lower rate. To guard against this risk, lenders add a premium to mortgage rates.
To understand just how much the combination of adjusted duration and prepayment risk is driving today’s mortgage rates up, it&#8217;s helpful to look back at the late 1990s. That period came before major events like the housing bubble, the 2008 financial crisis, and the COVID-19 pandemic. At that time, 10-year Treasury yields were slightly higher than they are now, and just like today, the 7-year Treasury rate was above the 10-year. However, the combined impact of duration adjustment and prepayment risk on mortgage rates back then was about 0.5 percentage points lower than what we see today. This comparison highlights how much more these two factors are contributing to the current spread between mortgage rates and Treasury yields.
One factor that currently has a minimal impact on the rise in mortgage rates is the primary-secondary spread. This spread measures the difference between the rate borrowers pay on a mortgage and the return investors receive from mortgage-backed securities (MBS), which are bundles of home loans typically backed by government-sponsored entities. This gap reflects the costs lenders face when originating mortgages—for example, the risk that interest rates might change between the time a borrower locks in a rate and when the mortgage is finalized. Toward the end of 2022, this spread briefly rose by about 0.3 percentage points, but it has since returned to levels similar to those seen in late 2019 and early 2022.
The final element contributing to the wider gap between mortgage rates and 10-year Treasury yields is what’s left after accounting for other known factors. This remaining portion—called the option-adjusted spread (OAS)—now explains about half of the overall increase in the spread compared to pre-pandemic levels. The OAS is likely higher because of weaker demand for mortgage-backed securities.
Over the past few years, the Federal Reserve has been reducing its holdings of these assets, and private investors have also pulled back, adjusting their strategies in response to rising interest rates. This decline in demand was especially noticeable in late 2022, when long-term Treasury yields surged. Since then, investor interest in MBS has stayed relatively low. Additionally, some investors may be more concerned about prepayment risk than what typical models suggest—especially if they believe future mortgage rates are more likely to fall than rise, making early refinancing more probable.
<h3>Conclusion</h3>
It’s likely that mortgage rates will remain high for some time. However, there are a couple of factors that could help bring them down in the near future. If the uncertainty surrounding future interest rates decreases and the risk of borrowers refinancing drops to what it was in the late 1990s, mortgage rates could fall by about 0.25 to 0.5 percentage points. In addition, a rebound in demand for mortgage-backed securities (MBS) could also help reduce rates—especially once the market adjusts more fully to tighter monetary policy and higher interest rates. Mortgage rates will remain elevated if Treasury bond yields stay high, even if the gap between them narrows back to pre-pandemic levels.

Real-estate-investment,-Buy,-own,-and-sell-properties-for-profit.

Are High Mortgage Rates Here To Stay?

Searching for a mortgage can induce stress, as understanding the different loan options, terms, and lenders can be overwhelming. It&#8217;s time to simplify things and start with the basics of loan terms. In the United States, the 30-year loan is the most favored fixed-rate mortgage. Many homebuyers choose a 30-year fixed mortgage, which enables them to repay the loan steadily over a span of 30 years at a consistent interest rate.
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<h3>Why are 30-year mortgage terms popular?</h3>
Due to the extended repayment period, longer-term loans tend to have higher interest rates, resulting in larger overall payments. However, the advantage of lower monthly payments provides buyers with flexibility in managing their monthly budgets, particularly if they anticipate potential job instability. Rates and terms of the loan are typically influenced by factors such as the buyer&#8217;s credit score, down payment size, property location, and eligibility for federal loans.

<h3>Straightforward application process online</h3>
Although the mortgage application process may appear complex, many loan websites streamline it by providing instant quotes through a simple two-step procedure. In the first step, you will be prompted to provide basic information such as your name, date of birth, home address, email address, house price, house location, down payment, and credit score. This initial step helps lenders gather the necessary details to proceed with the application.
Once you have successfully pre-qualified for a mortgage, lenders may request additional information to proceed with the application. This may include proof of income, tax documentation, proof of assets, and disclosure of debts. Rest assured, even when applying for a mortgage online, you will still have the opportunity to communicate with a loan officer who can guide you through the process and address any of your concerns.
<h3>Flexibility</h3>
A 30-year mortgage offers flexibility that allows you to pay off the loan earlier, which can be a beneficial financial choice resulting in long-term savings. you can make more frequent payments, such as bi-weekly or weekly instead of the standard monthly payments. You can also opt to pay larger amounts whenever possible, contributing extra towards the principal balance. Lastly, refinancing your mortgage can be an effective strategy to secure a lower interest rate or to adjust the loan term

<h3>Conclusion</h3>
Have a dream house in mind? 30-year loans cost more in the long run but they allow homeowners to keep monthly payments low. Applying online is simple, and the information you need to present is straightforward.

30-Year Mortgage

Whether you&#8217;re a first-time homebuyer or a seasoned homeowner, understanding vital financial tools such as home refinancing can pave the way for a brighter, more secure future.
<img loading="lazy" decoding="async" class="aligncenter size-full wp-image-77054" src="https://tower.mortgagereviewguide.com/wp-content/uploads/2025/05/the-percentage-symbol-for-increasing-interest-rates-on-stacks-of-coins-and-the-model-house.-Interest-rates-increase-home-loan-mortgage-house-tax.-investment-and-asset-management-concept.jpg" alt="the-percentage-symbol-for-increasing-interest-rates-on-stacks-of-coins-and-the-model-house.-Interest-rates-increase,-home-loan,-mortgage,-house-tax.-investment-and-asset-management-concept" width="600" height="400" srcset="https://tower.mortgagereviewguide.com/wp-content/uploads/2025/05/the-percentage-symbol-for-increasing-interest-rates-on-stacks-of-coins-and-the-model-house.-Interest-rates-increase-home-loan-mortgage-house-tax.-investment-and-asset-management-concept.jpg 600w, https://tower.mortgagereviewguide.com/wp-content/uploads/2025/05/the-percentage-symbol-for-increasing-interest-rates-on-stacks-of-coins-and-the-model-house.-Interest-rates-increase-home-loan-mortgage-house-tax.-investment-and-asset-management-concept-300x200.jpg 300w" sizes="(max-width: 600px) 100vw, 600px" />
A mortgage, at its most basic, is a loan secured against a piece of real estate property. If a borrower meets a lender&#8217;s qualifications, the lender grants the loan, which the borrower must repay with interest. Home refinancing, on the other hand, involves modifying an existing mortgage, either to alter the interest rate or to cash out on the home&#8217;s appreciated equity.
Home refinancing allows individuals to secure a lower interest rate, potentially reducing monthly mortgage payments and saving money over the life of the loan. Refinancing can also provide access to cash through equity, which can be used for home improvements, debt consolidation, or other financial needs.
Moreover, refinancing can help change the loan terms, such as switching from an adjustable-rate to a fixed-rate mortgage, providing stability and predictability in housing expenses. Overall, home refinancing offers the opportunity to improve one&#8217;s financial situation and achieve various financial goals.
<a href="https://www.linkedin.com/in/carol-demarco-9b973953">Carol De Marco</a> brings a wealth of managerial experience in residential mortgage lending, excelling in strategic planning and implementation. Alongside her exceptional interpersonal and communication skills, she is a prolific writer and speaker in financial literacy, utilizing her extensive knowledge in credit management.
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<h3>Understanding the Mortgage Application Process</h3>
Applying for a mortgage involves providing detailed information about your current and past employment, income, residence, financial assets, and liabilities. Lenders will verify this information along with your credit report and property appraisal to determine your ability to repay the loan.
Divorce Decree and Mortgage Lending
Applying for a mortgage involves several steps, including providing essential documents that give lenders a comprehensive picture of your financial health and repayment capabilities. If you&#8217;ve been through a divorce, an additional document—the divorce decree—may be required.
A divorce decree is a legally binding document that illustrates the split of assets, liabilities, and responsibilities between divorced individuals. It can potentially influence your mortgage application in the following ways:
<ul>
<li>Income considerations: Regular alimony or child support that you receive might be considered as income by the lenders. They would, however, require your divorce decree as verification of this income stream.</li>
<li>Debt Obligations: If your divorce decree assigns you the responsibility for child support or alimony payments, these financial obligations get factored into your debt-to-income ratio. This consideration can impact your loan qualification.</li>
<li>Property ownership: If you previously co-owned a property with your ex-spouse, your divorce decree should clarify the present ownership of the property and any associated financial responsibilities.</li>
</ul>
Always remember to disclose this information to your lender as they are assessing your ability to repay your mortgage. Open and honest communication will ensure they can provide the best loan program for your specific needs.
<h3>Roles and Responsibilities of Mortgage Lenders</h3>
Mortgage lenders shoulder the responsibility of:
<ul>
<li>Assessing a borrower&#8217;s application</li>
<li>Verifying provided information</li>
<li>Reviewing credit reports</li>
<li>Determining the applicant&#8217;s loan repayment likelihood</li>
<li>Arranging for new loan funding</li>
<li>Facilitating the transaction&#8217;s closing</li>
</ul>
If you&#8217;re looking for the best lender, it&#8217;s essential to consider their reputation, the interest rates they offer, their fees, and the duration of their loan process.
Mortgage lenders play a crucial role in the context of home refinancing by providing homeowners with the financial resources and expertise needed to optimize their mortgage arrangements. They offer the opportunity to secure better interest rates, potentially lower monthly payments, and access equity for various financial needs.
Lenders guide borrowers through the refinancing process, ensuring they make informed decisions and navigate the complex paperwork involved. Ultimately, mortgage lenders are instrumental in helping homeowners improve their financial situations and achieve their housing and financial goals through refinancing.
<h3>Essential Questions for Mortgage Lenders</h3>
Assessing a lender&#8217;s reliability can be accomplished through reviews, referrals, and online ratings.
The lender&#8217;s history in the industry can be inquired about, as stability and expertise are often signified by a longer track record. Their current interest rates should be asked about to ensure alignment with one&#8217;s financial goals and budget. The processing times from the initial application to the closing date can be inquired about, as this can impact an individual&#8217;s timeline for securing a loan.
Furthermore, the range of mortgage programs they offer should be delved into. An increased likelihood of finding one that suits one&#8217;s unique needs may be facilitated by a diverse portfolio of loan options. Customer reviews or testimonials should be requested to gain a firsthand perspective on past clients&#8217; experiences.
By conducting a comprehensive evaluation, an informed decision can be made, and a lender that not only offers competitive terms but also provides exceptional service can be chosen.
<h3>Mortgage Lenders vs Mortgage Brokers</h3>
A fundamental distinction within the mortgage process lies between mortgage lenders and brokers.
<ul>
<li>A mortgage lender is an establishment that extends and evaluates home loans, whereas a broker acts as an intermediary, aiding you in locating the most suitable loan from a selection of lenders.</li>
<li>A broker can navigate you through the procedure and engage in negotiations regarding loan terms, while dealing directly with a lender may be more fitting for individuals who are at ease conducting their own research on interest rates and loan conditions.</li>
</ul>
<h3>Navigating Current Mortgage Lending Rates</h3>
Current mortgage rates hover in the 5.75% &#8211; 7.5% range, but they can change daily. These rates are influenced by Treasury Bond rates, which the Federal Government offers.
Lenders buy their money at these rates, add their profit margin, and pass the rate on to the borrower. The mortgage&#8217;s term can also affect the rate—for example, a 15-year fixed-rate loan usually has a lower interest rate than a 30-year fixed-rate loan.
<h3>Correspondent Mortgage</h3>
Correspondent lending is when a financial institution originates and funds a mortgage, then sells it, usually to a larger financial institution. These larger institutions often bundle multiple loans together and resell them on the secondary mortgage market.
On the other hand, a lender performs the loan origination process but doesn&#8217;t provide the funding. Instead, they present a fully qualified loan package to a larger institution for funding and get paid a fee for the origination.
<h3>The Key to Successful Home Refinancing</h3>
When contemplating mortgage lenders for home refinancing, it&#8217;s crucial to keep in mind that numerous variables need consideration. These range from comprehending various mortgage types and interest rates to making thoughtful choices about a trustworthy mortgage provider.
Given the continuous shifts in the mortgage market, exercising caution and diligence during the home-refinancing process is more vital than ever before.