January Mortgage Interest Rates Forecast

Mortgage rates might ride up and down in January and finish lower than where they started, like a road trip that begins in the mountains and ends at the beach.

January is dominated by a change in presidential administrations, which dials up the uncertainty. “When things are more uncertain, rates tend to be more volatile,” says Chen Zhao, head of economic research for real estate brokerage Redfin.

One element of uncertainty comes via the Federal Reserve, which hinted in December that it will cut short-term rates just half a percentage point throughout 2025. That surprised investors who previously had expected the Fed to cut rates twice that much this year.

The Fed’s revised projections led to a jump in mortgage rates. When mortgage rates climb rapidly in response to the unexpected, they sometimes overdo it before falling back down. Thus the prediction that mortgage rates will be lower at the end of January than at the beginning.

Zhao, from Redfin, said the day before the December Fed meeting that she expects mortgage rates to remain relatively unchanged this month.

Rob Cook, vice president and chief marketing officer for Discover Home Loans, listed a couple specific factors for uncertainty: the size of the federal deficit and the path of inflation. “Those things play into the market,” he says.

In mortgage securitizer Freddie Mac’s weekly rate survey, the 30-year mortgage averaged a little over 6.6% in 2024’s fourth quarter. Fannie Mae (another mortgage securitizer) predicts that rates won’t change much in the first quarter of this year.

Fannie Mae has a discouraging note for home buyers who yearn for yesteryear’s rates: “We forecast the average mortgage rate to remain above 6 percent in 2025,” the company said in a statement.

There’s some sorta-good news lurking in that forecast of rates remaining above 6%: Elevated rates means fewer buyers willing to make offers. In turn, that means homes linger on the market — and the remaining home buyers have more properties to choose from.

By the end of 2025, “we should basically be back to the old normal levels of inventory,” said Mike Simonsen, founder of analytics firm Altos Research, in a weekly commentary on YouTube. He was talking about pre-pandemic inventories of homes for sale.

If Simonsen is correct, buyers in late 2025 will have their pick of about 300,000 more homes than they had toward the end of 2024.

At the end of November, I wrote that 30-year mortgage rates would be relatively unchanged in December, staying in a range between 6.75% and 7%. Rates were below that level in the first half of the month, then crept slightly above 7% Dec. 26 and 27 before easing back. The 30-year mortgage averaged 6.73% in December and 6.68% in the fourth quarter in SS’s daily rate survey.