Predictions for Mortgage Rates: Will They Drop in Late 2025 or Beyond?

If you're a first-time homebuyer, you're probably asking the same question as everyone else: When will mortgage rates go down? With rates still high and borrowing costs climbing, understanding the market has become more difficult. Whether you're buying or selling, the 2025 housing market is under close watch. In this post, we’ll get into what the mortgage rate predictions by experts are, the likelihood of a housing market correction, and — most importantly — whether rates are expected to drop later this year or shortly.

Residential Real Estate Stats: Existing, Pending, and New Home Sales

Sales of Existing Homes

Existing-home sales saw a rise in February 2025, likely due to mortgage rates falling to 6.76% by the end of the month. This includes completed sales of condos, single-family homes, co-ops, and townhomes.

As per the National Association of Realtors (NAR), existing-home sales increased by 4.2% month-over-month, with the adjusted sales rate reaching 4.26 million in February 2025, up from 4.08 million in January. Year-over-year, however, sales decreased by 1.2%.

Despite the rise in sales, NAR experts pointed out that the market has remained at a 30-year low for the past two years. Nevertheless, with increasing inventory, there is hope for a gradual recovery.

Resale inventory jumped 5.1% from the previous month and surged by 17% compared to last year. Currently, unsold inventory stands at a 3.5-month supply at the current monthly sales pace. Notwithstanding mortgage rate expectations, Experts suggest a balanced market is typically between four and six months of supply.

Meanwhile, home prices in 2025 continue to climb. The national median resale home price reached $398,400, marking a 3.8% increase from the previous year. This marks the 20th consecutive month of year-over-year price growth.

Sales of New Homes

After a slow January, new home sales bounced back in February, with a 1.8% increase from January and a 5.1% rise from the same time last year. This data is from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).

New homes are currently at a healthy 8.9-month supply. However, experts predict a slowdown in new construction inventory as rising material costs could increase builder costs. With resale inventory increasing, new homes will need to remain competitive, possibly by offering lower prices or more incentives.

Sales of Pending Homes

The Pending Home Sales Index recorded a 2% increase in February, according to NAR. A pending sale occurs when the buyer and seller have agreed on a home sale price and terms, with the transaction set to close in one to two months.

However, pending home sales are down 3.6% year-over-year, and market activity remains at a record low. Most potential buyers are cautious, avoiding transactions due to the current market conditions.

Experts suggest that a decline in mortgage rates could boost demand and supply. For buyers, lower rates would increase affordability, while for sellers, it could ease the mortgage rate lock-in effect. However, experts caution that rates may not drop significantly due to national debt concerns, and even if they fall, they are unlikely to reach the 4% to 5% range.

What Do Experts Say About a Foreclosure Surge in 2025? 

According to data shared by Attom, which is a real estate data firm, foreclosures on 22,730 properties began in February 2025 across the U.S. This marks an 8% increase from January and a 1% rise compared to last year.

Real estate-owned properties (REOs) showed a near 2% increase from January but a decline of 11% compared to the previous year. REOs are homes that didn't sell at foreclosure auctions and were subsequently taken by the lender.

While foreclosure activity in the U.S. remains relatively low, experts are closely watching the rise in February. Some of this increase may be seasonal, but if this uptick continues, it could signal potential shifts in the housing market.

Data shows that foreclosure activity in 2019 was considerably higher than in 2024. Foreclosure filings peaked in 2010 at nearly 2.9 million, and compared to that, filings in 2024 were down almost 90%.

So, what’s keeping foreclosures in check? Experts point to the high equity homeowners have built up. Homeowner equity grew by approximately $2.8 trillion between the fourth quarters of 2023 & 2024, according to the Federal Reserve Bank of St. Louis. As of 2025, total homeowner equity stands at nearly $35 trillion—$22.2 trillion higher than it was five years ago, marking a 45% increase.

The percentage of equity-rich mortgages has also increased significantly. According to Attom’s latest U.S. Home Equity and Underwater Report, nearly 47% of mortgaged homes were equity-rich during the 4th quarter of 2024. This is up from about 26.5% in early 2020.

Can We Expect a Housing Market Recovery in 2025?

With foreclosure activity beginning to show signs of increase, many are wondering if the housing market is on the brink of a recovery in 2025. For that to happen, two crucial factors must fall into place:

1. The Supply of Homes Should Increase: Experts emphasize that improving the inventory of homes is a critical factor for recovery. More homes in the market would ease the pressure on prices, potentially stabilizing or even reducing them from their peak levels.
   
   

2. Mortgage Rates 2025 Should Reduce: Along with an increase in the supply of homes, mortgage rates need to come down. For the past five months, rates have been hovering around 6.5%. However, experts believe the situation could improve if the Federal Reserve reduces the key interest rate further. 

That said, experts warn that a rapid decrease in mortgage rates could cause an immediate surge in demand. If that happens too quickly, it might undo any gains in home inventory, potentially driving home prices up again.

Mortgage interest rate predictions suggest that rates falling between the upper 4% and lower 5% range would be ideal for the housing market. This would create a balanced environment for both buyers and sellers. But, as experts note, this process will take some time.

Outlook for the 2025 Housing Market Recovery

While the housing market in 2025 faces several challenges, including rising foreclosures and high mortgage rates, there is hope for a recovery if key factors like home supply and mortgage rates align. If inventory increases and mortgage rates decrease to a more manageable range, the market could experience stability, benefiting both buyers and sellers. However, experts caution that the path to recovery will take time, and the evolving economic conditions will continue to act as a major player in shaping the market’s trajectory.

For more such insights in the U.S. Housing market, stay tuned to Total Mortgage.