Don't count on a rate drop back below 6%
While home price growth is expected to moderate, interest rates are forecasted to remain higher than previously expected, according to a Reuters survey of property experts released Tuesday.
In addition, those same experts expect new home construction to continue to struggle in the wake of continued tariffs being implemented by the Trump administration.
The survey expects 30-year mortgage rates to fall to 6.73% this year from the current 6.98%. Rates are forecasted to drop to 6.33% in 2026 and 6.29% in 2027.
Reuters’ survey results are in contrast to the latest forecast from Fannie Mae released May 21. In that forecast, the average 30-year fixed-rate mortgage was projected to fall to 6.2% by year’s end and 6.0% in 2026.
Odeta Kushi, deputy chief economist at First American, told Mortgage Professional America that forecasting mortgage rates is challenging. She believed that if economic conditions allowed, rates closer to 6% by the end of the year were possible.
“Mortgage rate forecasting is notoriously difficult,” she said. “Rates are shaped by economic fundamentals, investor sentiment, and global geopolitical risks. In the short term, tariffs and trade policy pose downside risk to growth and upside risk to inflation, a tricky balance for the Federal Reserve.
“If inflation stabilizes and the Fed begins to shift toward a more accommodative stance to prevent a slowdown, we could see mortgage rates decline gradually over the second half of the year. Mortgage rates close to 6% are not out of the question. It just depends on how the economic data unfolds.”
Home price increases expected to slow
The experts surveyed believe home prices will rise 3.5% through 2027, based on the 20 metropolitan areas included in the S&P CoreLogic Case-Shiller composite index. If that occurs, it would be the slowest pace of home price increases since 2011.
However, the Reuters report notes that home prices are 50% higher than in 2019, before the pandemic.
Lawrence Yun, the National Association of Realtors (NAR) chief economist, believes that despite more houses on the market, home sales are not increasing, and therefore, price increases are slowing.
“At this critical stage of the housing market, it is all about mortgage rates,” Yun said. “Despite an increase in housing inventory, we are not seeing higher home sales. Lower mortgage rates are essential to bring home buyers back into the housing market.”
Stacey Melton of Reasy Financial cautions potential homebuyers against expecting a significant drop in home prices or interest rates. She highlights the current mortgage market's stability compared to 2008.https://t.co/P08RTpSWcY
— Mortgage Professional America Magazine (@MPAMagazineUS) May 22, 2025
Redfin CEO Glenn Kelman told CNBC that home prices may continue to moderate.
“There has been a real shift,” Kelman said. “Homebuyers over the past few years have shaken off rate increases. Home prices kept rising. We anticipate prices will fall at least 1% in the second half of 2025. When you compare that to 4% wage growth, it means that finally homebuyers may be in position to catch a break.”
Kelman said continued worries about the economy could finally bring home prices in the range of homebuyers, despite the high interest rates.
“Sellers still have higher expectations from previous years,” Kelman said. “Buyers are now standing back. Some of that is macroeconomic anxiety. One in four Americans right now are saying they’re cancelling or deferring plans to buy a car or a house because they’re so worried about the economy. We are seeing, finally, evidence of a real correction, where prices are going to come down.”
Tariffs hurting new home construction
Monday’s construction report from the Commerce Department’s Census Bureau showed a drop in spending in April.
Construction spending fell 0.4% in April after a 0.8% fall in March. Economists polled by Reuters expected a 0.3% increase in April.
Tariffs were cited as one of the reasons for the decline in construction. In the Reuters survey, 21 of 24 experts said fewer homes would be built, with two of those experts believing that far fewer homes would be built.
Thomas Ryan, an economist at Capital Economics, told Reuters that he doesn’t expect the Federal Reserve to make any further rate cuts in 2025.
"President Trump’s inflationary trade and immigration policies leave no clear path to the lower borrowing costs the housing market desperately needs,” Ryan said.
The outlook for first-time homebuyers is also worsening in the Reuters survey. Only 12 out of the 24 experts said purchasing affordability would improve for first-time homebuyers over the rest of the year. In February, 62% of experts expected improvement.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
