Mortgage Rates Rise to 6.85% After Fed Projected Fewer Cuts in 2025

by Keith Griffith

Mortgage rates rose again from 6.72% last week to 6.85% for the average 30-year fixed home loan for the week ending Dec. 26, according to Freddie Mac.

“Mortgage rates increased for the second straight week, rebounding after a decline from earlier this month,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “While a slight improvement in new and existing home sales is encouraging, the market remains plagued by an overwhelming undersupply of homes. A strong economy can help build momentum heading into the new year and potentially boost purchase activity.”

The holiday uptick in mortgage rates comes after the Federal Reserve issued a “hawkish” rate cut last week. Although the central bank cut its benchmark rate by a quarter-point, policymakers revised their forecasts for 2025, predicting just two more such cuts in the coming year, down from the four they had expected in September.

Recent inflation data has also shown an alarming uptick in prices, raising the prospect that the Fed may have to pause rate cuts or even resume hikes to get consumer prices back under control.

Faced with the prospect of Fed rates remaining higher than expected through next year, the long-term bond markets that are the primary driver of mortgage rates reacted with dismay.

Average mortgage rates are now at their highest level since July, dashing hopes for holiday rate relief that could have spurred a year-end revival in the housing market.

Although sales of both new and existing homes ticked up in November, December sales data is likely to confirm 2024 as the lowest year for home transactions since at least 1995. Supply constraints and high prices remain key problems for buyers, with the mortgage “lock-in” effect still apparently discouraging many homeowners from selling.

The housing market outlook for 2025

The Realtor.com® economic research team projects that mortgage rates will average 6.3% through 2025 and end the year at around 6.2%.

“Generally, we expect mortgage rates to ease and home prices to tick higher in the coming year, resulting in very little, if any, change in the cost to purchase a home,” says Realtor.com senior economic research analyst Hannah Jones.

Yet buyers in many areas, including the 2025 top markets, will be in a more favorable position as more new and existing homes are listed for sale, the forecast projects.

However, even though the 2025 housing market is expected to be the most buyer-friendly since 2016, “it will not cross into buyer’s market territory,” according to Jones.

She says sellers will also be in a good position next year since household real estate equity remains near last quarter’s record-high of roughly $266,000 for existing homeowners.

Editor’s note: Due to the holiday schedule, the Realtor.com economic research team will resume regular publication of its full Weekly Housing Market Update with price, inventory, and sales data starting in mid-January.

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