2025 Mortgage Market Trends and Predictions

With the new year approaching, mortgage professionals and homebuyers alike are eager to see what 2025 has in store for the real estate market. After all, 2024 didn’t deliver the market improvements many had hoped for.

For several years now, the real estate market has been stifled by persistent inflation, stubbornly high mortgage rates, and other subpar market conditions. So, will 2025 be any better? Or will it be more of the same?

Below, we’ll summarize some of the leading industry experts’ forecasts for 2025 regarding interest rates, housing inventory, and the hottest real estate markets. After that, we’ll explore two key mortgage technology trends that can help you grow your business and boost efficiency in the year ahead.

Table of Contents

2025 Mortgage Rate Predictions

For the majority of 2024, mortgage rates have remained high. The average rate for 30-year fixed-rate mortgages was 6.72% in December 2024, pricing many aspiring homebuyers out of the market and locking many would-be sellers into their existing homes.

2025 mortgage rate predictions vary from one industry expert to the next, but most agree that rates will continue to remain elevated. The general consensus is that the average 30-year fixed mortgage rate will hover between 5.75% and 7.25% throughout the year.

According to Fannie Mae’s Senior Vice President and Chief Economist Mark Palim, “We think 2025 will look a lot like 2024, with mortgage rates above 6 percent, home price growth easing from recent highs but staying positive, and supply remaining below pre-pandemic levels.”

Here are a few more predictions from other trusted institutions:

The Mortgage Bankers Association (MBA) predicts that mortgage rates will fall to 6.4% by the end of 2025.
Realtor.com expects that rates will sit slightly above 6%.
Redfin is slightly more pessimistic, predicting that rates could inch closer to 7%.
CNBC experts suggest that rates will stay relatively stable around 6%.

While these forecasts are not as optimistic as lenders and buyers may have hoped, the direction of mortgage rates is always subject to change. They ultimately depend on the following factors:

Inflation – During 2024, the Federal Reserve brought down the inflation rate very close to its 2% target. This progress, coupled with signs of a slowing labor market, motivated the Fed to implement three rate cuts this year. If inflation continues to cool, the Fed could implement more aggressive rate cuts in 2025, causing mortgage rates to fall slightly during the second half of the year.
Federal Reserve’s monetary policy – While continued rate cuts could bring down mortgage rates, the Fed’s 2025 monetary policy hinges on the direction of inflation. If inflation climbs back up again during President Trump’s second term, as many economists predict, the Fed may need to pivot to a more reserved fiscal policy.
Economic growth – During periods of strong economic growth, 10-year Treasury bond yields typically rise. Since these bonds are closely correlated with mortgage rates, an increase in their yields often leads to higher mortgage rates. Therefore, if the U.S. economy continues to expand in 2025, mortgage rates may remain elevated.

High-Rate Implications for Homebuyers

Just as mortgage lenders are hoping for lower interest rates, homebuyers are equally eager for some relief. After all, high mortgage rates can spike borrowers’ monthly payments substantially – on a $400,000 home, the difference between a 2% and a 7% mortgage rate could add as much as $1,200 to a borrower’s monthly payment.

Based on current predictions, housing affordability will likely remain a hurdle for many aspiring homebuyers in 2025. Thus, lenders should educate their applicants on ways to overcome affordability challenges. Some helpful tips include proactively improving their credit scores, leveraging down payment assistance programs, and exploring more affordable housing markets.

2025 Housing Inventory Trends

In addition to elevated interest rates, limited housing inventory has been a major trend in recent years. The ongoing shortage of available homes has fueled intense competition in many markets, pushing home prices higher and making it increasingly challenging for buyers to find homes within their budget.

According to many experts’ predictions, limited inventory levels will likely persist in 2025. The National Association of Realtors (NAR) attributes this trend to the ongoing “lock-in effect” – a phenomenon where existing homeowners are reluctant to move because they’re locked into lower mortgage rates than they can get today.

However, the lock-in effect may ease up as the year progresses. According to a Realtor.com analysis, 84% of homeowners had mortgage rates below 6% in mid-2024, down from 89% the previous year. Realtor.com’s chief economist Danielle Hale predicts this share will drop to 75% by the end of 2025 as more homeowners decide to sell and move, adding fresh inventory to the market.

While a reduction in mortgage rates could ease the “lock-in effect,” even a stabilization of rates could have a similar impact. When sellers are less worried about sudden rate fluctuations, they’re often more inclined to list their homes. Similarly, buyers may act more quickly, rather than waiting on the sidelines for rates to stabilize.

In 2025, the housing market is also expected to see a significant boost in new construction, with an estimated 1.1 million homes being built, a 13.8% increase from 2024. However, these homes are likely to be slightly smaller in size, making them more affordable and accessible for first-time homebuyers.

2025 Top Real Estate Market Predictions

Despite low national inventory levels, some regions will enjoy more real estate activity than others. For example, the Sun Belt region is likely to remain a hot market, thanks to its strong housing construction and growing populations in Texas, Florida, and Arizona. Of all the Sun Belt cities, Dallas ranks as the most promising real estate market for 2025.

In contrast, the Northeast and West Coast will likely continue facing steep levels of competition, particularly in large cities like San Francisco, Los Angeles, and New York.

Top 10 Hottest Real Estate Markets For 2025

While some regions will see more activity than others, several big cities are also expected to experience a surge in housing demand in 2025.

NAR predicts that the following 10 cities will be 2025 hot spots due to their affordability, steady job growth, lessening lock-in effects, and increasing migration patterns:

Boston, MA
Charlotte, NC
Grand Rapids, MI
Greenville, SC
Hartford, CT
Indianapolis, IN
Kansas City, MO
Knoxville, TN
Phoenix, AZ
San Antonio, TX

2025 Mortgage Technology Trends

For several years, the leading tech trends in the mortgage industry have been artificial intelligence (AI) and automation. While these advancements have already transformed the industry, this trend is set to accelerate in 2025.

Artificial Intelligence

AI fundamentally transformed many industries in 2024, ranging from healthcare and finance to entertainment and education. For this reason, the University of Texas designated 2024 as the “Year of AI.”

As we move into 2025, AI will continue revolutionizing countless industries, and the mortgage sector is no exception. By reviewing vast data sets, employing predictive analytics, and leveraging natural language processing (NLP), AI has the potential to:

Quickly evaluate applicants’ creditworthiness
Streamline application processing
Employ intelligent assistants and customer service chatbots
Improve risk assessment by analyzing large datasets
Pinpoint discrepancies that may indicate fraud
Strengthen regulatory compliance

Lenders who proactively adopt AI can gain a significant competitive advantage over those who don’t, improving their operational efficiency, customer service, and risk management along the way.

Automation

Automation is another must-have technology for mortgage lenders in 2024. By streamlining manual tasks, automated solutions can save lenders time, cut costs, reduce errors, and enhance efficiencies.

At Certified Credit, we’ve developed several automated solutions that you may want to consider implementing in 2025, including:

Cascade Alerts, which can automate your lead generation and borrower retention by pinpointing borrowers in your existing database who are actively shopping for new mortgage products, enabling you to reach out to them before they commit to competitors.
Cascade Prequal, which allows you to automatically prequalify applicants online in seconds using your preferred suite of soft pull credit reports.
Cascade Verification of Income and Employment (VOE), which facilitates faster, more cost-effective verifications using a personalized list of instant-hit and consumer-permission vendors.
Cascade Undisclosed Debt Monitoring (UDM), which monitors your applicants’ credit reports from their initial credit pull through closing to ensure they don’t incur any debt that puts their eligibility in question.

Secure Your Success in 2025 With Certified Credit

As you can see, the 2025 mortgage market presents ongoing obstacles and new opportunities. By leveraging the right tech tools and marketing tactics, you can rise above its challenges and position yourself for success.

Want to tackle 2025 with a trusted credit partner by your side? If so, Certified Credit is here to support you every step of the way. With our innovative tech solutions and award-winning customer service, we can help you streamline your workflows, cut costs, and optimize your outcomes in 2025 and beyond.

Schedule a credit consultation with our team to learn more.

Sources:

The Mortgage Reports. Mortgage Rates Keep Climbing | Today, Dec. 20, 2024.

https://themortgagereports.com/mortgage-rates-now/mortgage-rates-today-dec-20-2024-2

Norada. Mortgage Rates Predictions for 2025: Expert Forecast.

https://www.noradarealestate.com/blog/mortgage-rates-predictions-for-2025-will-rates-drop/#:~:text=Mortgage%20Rate%20Predictions%20for%202025,wild%20ride%20of%20recent%20years.

PR Newswire. This Week in Finance News: 12 Stories You Need to See.

https://www.prnewswire.com/news-releases/this-week-in-finance-news-12-stories-you-need-to-see-302336866.html#:~:text=%22From%20an%20affordability%20perspective%2C%20we,Vice%20President%20and%20Chief%20Economist.

Realtor.com. Realtor.com 2025 Housing Forecast.

https://www.realtor.com/research/2025-national-housing-forecast/

Redfin. Redfin’s 2025 Predictions: Pent-Up Demand Will Lead to More Home Sales, But Many Would-Be Buyers Will Opt to Rent.

https://www.redfin.com/news/housing-market-predictions-2025/