Mortgage Rate Outlook: What To Expect in 2025

Today is a day of profound significance for our nation. We honor the legacy of Dr. Martin Luther King Jr., whose unwavering commitment to justice and equality continues to inspire us all. Today also marks the inauguration of our 47th President, Donald J. Trump, who was sworn in earlier today. As the nation embarks on this new chapter, we anticipate policy shifts that may influence the economic landscape, including potential changes in federal spending and trade policies. I wanted to take a moment to reflect on the state of the economy and what it means for real estate and mortgage rates. We’re in a dynamic period of uncertainty and opportunity, and navigating these waters requires both focus and adaptability. Here are my thoughts on where we stand today, where we might be heading, and how I’m positioning for the future.

Mortgage Rates: Why Aren’t They Dropping?

Although the Federal Reserve has hinted at possible rate cuts this year, mortgage rates remain stubbornly high, hovering between 6% and 7%. This disconnect stems from broader economic concerns. While inflation has eased from its peak, it’s still above the Fed’s 2% target. Add in a robust job market and fears of the economy running too hot, and it’s clear why investors are hesitant to let mortgage rates fall too quickly.

Expectations of a potential Trump administration have further complicated the outlook, with speculation about increased government spending, persistent tariffs, and little appetite for spending cuts. These factors suggest inflationary pressures could linger, keeping mortgage rates elevated.

However, I see tariffs playing a strategic role in negotiations, much like the principles in The Art of the Deal. Trump’s focus on leveraging bold positions to achieve favorable outcomes could make tariffs less about long-term policy and more about creating bargaining power. In his book, he emphasizes the importance of "maximizing your leverage," and I believe this approach will define how tariffs are used moving forward.

The 10-Year Treasury: Overstated or Sustainable?

The 10-year Treasury yield plays a critical role in mortgage rates, often serving as a benchmark. With concerns about increased government spending and persistent tariffs, many believe the 10-year Treasury could remain elevated, continuing to keep mortgage rates high.

But there’s room for optimism. If tariffs are indeed used as negotiating tools and spending is strategically managed, the 10-year Treasury yield could decline significantly. This would alleviate upward pressure on mortgage rates.

This is where Elon Musk comes to mind. Musk has repeatedly proven that seemingly impossible challenges—whether landing rockets, scaling electric vehicle production, or achieving rapid innovation—can be overcome with focus and determination. If you believe Musk can cut costs and innovate in untouchable industries, why not consider that the same strategic mindset could influence government spending and economic policy? Should these elements align, we may see the 10-year Treasury yield come significantly down, offering a brighter outlook for mortgage rates.

Should You Wait to Buy a Home?

For those thinking about buying a home but feeling discouraged by today’s rates, remember: timing the market perfectly isn’t the goal. What matters is finding the right property at a fair price with a payment you can comfortably afford. If rates drop later, refinancing is always an option.

Instead of waiting, focus on what you can control:

• Assess your budget: Make sure your finances are prepared for a purchase, including an emergency fund for unexpected costs.
• Explore financing options: Adjustable-rate mortgages (ARMs) or rate buy-downs might help bridge the gap while rates are higher. Just be careful on this one, although it's a lower probability that rates go up, that does not mean that they will not.
• Be ready to act: Work with a trusted agent and lender to stay informed about inventory in your target market.

Why I’m Doubling Down on California Multifamily Real Estate

While navigating these mortgage rate challenges, one area where I’m confident is in California multifamily real estate. The state faces a severe housing shortage, both in homes and apartments. As homeownership becomes less affordable, demand for rentals will only increase.

Multifamily housing is uniquely positioned to benefit from this dynamic. California’s population growth, paired with rising affordability pressures, creates a steady and growing demand for quality rental properties. This is why I continue to invest in multifamily projects throughout the state. I truly believe this is one of the most exciting times to be a real estate investor in California.

Closing Thoughts

The path ahead for mortgage rates and the economy might be unclear, but the fundamentals of smart investing remain the same. Whether you’re looking to buy a home or invest in real estate, focus on your buy box, strategy, and most importantly, remain disciplined.

Thank you for being part of this journey. I’m excited about what’s ahead and look forward to sharing more opportunities with you in the coming months. Here’s to a successful 2025!

Sincerely, Mikey