Buyers should keep an eye on the possibility of rate cuts in the next few months. Tharon Green/CNET
The average rate on a 30-year fixed mortgage was around 6.7% on Monday, down roughly 0.25% from the previous month, according to Bankrate data. Despite the recent decline in rates, forecasts for the housing market have remained unchanged.
Mortgage rates, linked to the bond market, have been stuck in limbo between 6.5% and 7% for months. President Trump's on-and-off-again tariffs, stock market swings and geopolitical turbulence have created ongoing uncertainty in the housing market. This week, financial markets are bracing for a bevy of White House announcements, including threats of new tariffs.
Though jobless claims and layoffs are increasing, the most recent jobs report from the Bureau of Labor Statistics showed a lower-than-expected unemployment rate. Strong labor market data tends to drive up bond yields, which translates to higher mortgage rates.
As I've discussed in the past, a steady job market also makes it less likely that the Federal Reserve will carry out an interest rate cut this summer. Bond market investors drive yields (rates) higher or lower based on their expectations for inflation, unemployment, Fed policy decisions and government debt.
Market watchers are currently betting on September for a Fed reduction. But that won't be a magic cure for the housing market. Fannie Mae projects mortgage rates to stay above 6.5% throughout 2025. Mortgage rates would need to fall substantially from current levels to encourage homebuying demand, said Beth Ann Bovino, chief economist at U.S. Bank.
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Tariffs, the Fed and mortgage rates
The central bank is responsible for ensuring full employment and controlling inflation, mainly by setting short-term interest rates for banks. Though the Fed's policy changes have a ripple effect on all borrowing rates, the central bank doesn't directly set the rates on home loans.
The market currently projects an interest rate cut in the fall, though two Fed officials floated the possibility of a rate cut this month. Fed Chair Powell has reaffirmed a "wait and see" posture, with concerns over the inflationary impact of tariffs.
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