I was thinking about mortgage rates, as I often do, when I decided to pose a question to Grok, the LLM chatbot owned by xAI.
So many folks debate which way interest rates are going that I decided to just ask the chatbot instead.
Why bother debating with humans when I can just ask the super intelligent computer to spit out an answer for me based on data.
Specifically, I asked the following: “Is there a higher likelihood of U.S. mortgage rates being higher or lower than current levels by December 31st, 2025?”
And lo and behold, Grok told me “the consensus leans toward a modest decline.”
A Modest Decline for Mortgage Rates?
In what felt like a pretty safe answer (apparently chatbots are so like us), Grok summed up a much longer response I won’t bore you with by saying a “modest decline” was likely.
This modest decline was based upon “expert forecasts” from about a dozen institutions and economists, including the likes of Fannie Mae, the Mortgage Bankers Association, NAHB, NAR, Wells Fargo, and several others.
Grok arrived at the answer by taking an average of all these forecasts it compiled, noting that most of them ranged from 6.1% to 6.6% by December 31st, 2025.
Given that the current 30-year fixed rate is 6.77%, according to Freddie Mac (who incidentally doesn’t have a forecast), this would indicate that we’re going lower by year end.
Among the forecasts cited, S&P Global’s 5.5% rate was considered the biggest outlier (pretty bullish), while a website called Long Forecast has a year-end rate of 6.69%, which is closest to current levels.
The average among all the forecasts cited in the answer was roughly 6.3%, which suggests a clear downward bias from today’s rates.
In fact, it’s about a half-point lower than current rates, which is decently lower, but I suppose still modest in nature.
What’s the Case for Lower Mortgage Rates by Year End 2025?
Grok came up with a list (surprise surprise) of five things that could push mortgage rates lower by December.
They include:
– Fed rate cuts
– Economic slowdown
– Geopolitical stability
– Housing market pressure
– Mere probability
The first is two (or even three) expected rate cuts, which I’ll remind everyone the Fed doesn’t set mortgage rates.
Sometimes its own monetary policy aligns with long-term rates, but there’s no direct correlation. Their policy only direct impacts the prime rate for HELOCs.
However, if they are cutting, chances are there is an economic slowdown as well (#2 on the list).
This could support lower 10-year bond yields, which would translate to lower 30-year fixed mortgage rates as well.
That’s what many are banking on as inflation continues to slow and unemployment continues to rise.
Next up is geopolitical stability, which Grok believes would keep demand up for U.S. bonds, and thus bring down yields.
Simply put, bonds are safe haven assets, and a place to park money when times are uncertain.
Next up is a deteriorating housing market, which could push lenders to offer lower rates to drum up demand.
I’ve explained before that it could be opportunistic to apply for a mortgage when lenders are slow because they tend to pass on more savings.
So all in all, decent rationale for lower rates.
What’s the Argument for Higher Mortgage Rates in December?
On the other side of the coin, we have the following reasons why mortgage rates could end 2025 higher:
– Persistent inflation
– Strong economy
– Fiscal deficit concerns
– Geopolitical escalation
If inflation does pick up again, perhaps due to tariffs and fiscal spending, the Fed may hold off on rate cuts.
At the same time, bond buyers may demand a higher yield to buy government debt.
Similarly, if the economy remains robust, that too could put pressure on bonds and push yields (and mortgage rates) higher.
There’s also the government spending bill, which will likely require more bond issuance, with greater supply leading to lower prices and higher yields, all else equal.
And finally, if the geopolitical situation worsens, you could have a situation where bond yields rise and/or oil prices go up. That could potentially lead to higher interest rates, or at least not lower ones.
But this scenario is still much less likely than rates being lower, as explained above.
So if we’re banking on the consensus, mortgage rates should be lower by the end of 2025.
Not significantly lower, but perhaps around .50% lower than current levels, which could be bullish for the housing market.
It could also allow some existing homeowners to refinance their mortgage to a lower rate to save some bucks.
But like all forecasts, Grok did point out that “mortgage rate forecasts are inherently uncertain, and unexpected economic or geopolitical developments could alter outcomes.”
If nothing else, it’s got that last part right!
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.