Moody’s Ratings has predicted that mortgage rates in the United States will start declining over the next few years, despite remaining higher than they were during the pandemic housing boom. The average rate for a 30-year-fixed mortgage reached a record high of 7.1 percent, but Moody’s experts estimate that rates will likely come down to around 6 percent or lower by the end of 2025. This is good news for aspiring homebuyers who have been struggling to purchase homes due to high prices and mortgage rates resulting from the Federal Reserve’s actions to combat inflation.
While most analysts expected the Federal Reserve to lower interest rates this year, inflation remains higher than expected, which has prevented the central bank from making any changes. The rise in interest rates has impacted new mortgage lending, causing demand to drop in 2022. However, the subsequent price correction was mild, and home prices began to increase again in spring 2023 due to low supply. The shortage of homes in the U.S. is attributed to under-building after the housing bubble burst in 2007-2008, as well as homeowners holding on to their properties because of low fixed-rate mortgages.
Moody’s experts anticipate that home prices will not see a significant decline in the near future, projecting a moderate 5 percent slide in 2024 after a 6.6 percent drop in 2023. The growing demand for new constructions and mortgage interest rate buydowns will contribute to maintaining prices. The report highlights that many homeowners are reluctant to sell due to their favorable mortgage terms, which is limiting available properties in the market. The combination of high prices, low inventory, and mortgage rates has created challenges for both buyers and sellers in the housing market.
The Federal Reserve’s actions impact interest rates, although they do not directly set mortgage rates. Despite expectations of rate decreases, the central bank has held off due to persistent inflation rates, which reached 3.48 percent in March. The delay in lowering rates has affected new mortgage lending and contributed to the high cost of borrowing. This has put pressure on potential homebuyers, who are finding it increasingly difficult to afford homes as prices continue to rise. However, the forecasted decline in mortgage rates by Moody’s offers hope for those looking to enter the housing market in the coming years.
Overall, the housing market in the U.S. is facing challenges from various factors, including high mortgage rates, low inventory, and inflation. Moody’s Ratings’ prediction of declining mortgage rates by the end of 2025 provides some relief for potential homebuyers, although the process may be gradual. The Federal Reserve’s cautious approach to interest rates and the impact on mortgage lending will continue to shape the housing market landscape in the coming years. Despite these challenges, experts expect home prices to stabilize and potentially see a modest decline, offering a more balanced market for buyers and sellers.
