The 10-year Treasury yield has dropped by 60 basis points, from 4.8% to 4.2%, in the last two months due to less confidence in the economy. Mortgage rates have also gone down because of this.
The 30-year fixed mortgage rate hit 6.75%, which is the lowest it has been since the middle of December. While this drop is good news, high Interest Rates Mortgages are still having an effect on the real estate market.
These rates have made people less likely to buy homes in early 2025. Stats show that there are about 3% fewer possible home sales each week than there were a year ago. Potential sales were 5% higher in the fourth quarter of 2024 than they were the year before. This was a good sign.
In early 2025, growth slowed down after being strong in late 2024. This shows how tough it is for buyers to get loans due to the high costs. But now that mortgage rates are going down, there is a big question: Will people buy homes to help the market get better use of the chance?
Mortgages With Fixed Rates vs. Adjustable Rates
People who are looking for a mortgage in a market that is always changing should know the difference between fixed-rate and adjustable-rate mortgages (ARMs). With a fixed-rate mortgage, the interest rate and monthly payments stay the same for the life of the loan.
Homeowners may decide to refinance to get a better deal if market rates drop a lot. An adjustable-rate mortgage, on the other hand, has a set interest rate for the first few years. After that, the rate changes based on how the market is doing.
A 7/1 ARM, for example, keeps the rate the same for seven years and then changes it every year. When you first get an ARM, the rates are usually cheaper than with a fixed mortgage. However, after the first term, the rates could go up.
ARM rates have been higher than fixed rates lately, though, which makes them less appealing to people who want the best interest rates that mortgages can offer.
When will rates on mortgages go down?
In the past few weeks, mortgage rates have gone down, but big drops are not likely to happen until the end of 2025.Rates were going down from the beginning of August 2024 until the meeting of the Federal Reserve on September 18, 2024.
That’s when the Fed lowered the fed funds rate by fifty basis points. After this change, mortgage rates stayed the same or went up a little.
Additional 25-basis-point cuts in November and December had a limited effect on mortgage rates. Future interest rates mortgages depend on the Federal Reserve’s policy decisions in 2025.
The Fed hold rates steady at its January 29 meeting, and the CME FedWatch tool currently predicts a 91% chance that rates will remain unchanged at the March meeting. This means that big drops in mortgage rates are probably not going to happen any time soon.
Opportunities for people who want to buy a home
Since interest rates mortgages are lower now than they were a year ago, people who want to buy a home may be able to find cheaper ways to finance it in the coming months.
But people are still worried about the cost, and the full return of demand will rest on how long rates stay low. More people might buy houses if interest rates on loans keep going down.
Until then, the market will be closely watching the Federal Reserve’s actions and the economy to see if there are any signs of more rate cuts that could change the rates on mortgages.
The market is still changing, even though mortgage rates have recently gone down, which is good news. We will need to wait a few months to see if lower rates can really make more people want to buy homes.
