By Don DeBat

4-Mar-25 – Chicago home buyers may have to look at the housing market through long-range binoculars if they hope to see affordable mortgage interest rates.

Although Freddie Mac’s Primary Mortgage Market Survey reported on February 27 that interest charges on benchmark 30-year fixed-rate home loans nationwide eased for the sixth week in a row, the dream of locking in an affordable mortgage in the 5 percent range may be years away.

On February 27, Freddie Mac’s survey noted that benchmark 30-year fixed home-loan rates averaged 6.76 percent, down from 6.85 percent a week earlier. A year ago, the 30-year fixed-rate loans averaged 6.94 percent.

“Last week, mortgage rates decreased to their lowest level in more than two months,” said an optimistic Sam Khater, Freddie Mac’s Chief Economist. “The mortgage rate drop, combined with modestly improving existing home inventory, is an encouraging sign for consumers in the market to buy a home.”

Fifteen-year fixed mortgages averaged 5.94 percent on February 27, down from 6.04 percent a week earlier. A year ago, 15-year fixed loans averaged 6.26 percent.

The Freddie Mac survey is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who place a 20 percent down payment and have excellent credit.

Analysts say the recent steady – though modest – decline in mortgage rates hasn’t been enough to alter the affordability equation for many prospective home shoppers, especially first-time buyers who don’t have equity from an existing home to put toward a new purchase.

In 2025, mortgage rates will dip to about 6 percent, Lawrence Yun, Chief Economist for the National Association of Realtors, optimistically predicted in early February.

However, by the final quarter of 2025, Fannie Mae expects benchmark 30-year fixed mortgage rates to only decline to 6.6 percent. Meanwhile, the Mortgage Bankers Association and Wells Fargo are forecasting 6.5 percent rates by the final quarter of 2025.

Yun also noted that the average age of the first-time home buyer in 2024 was 38 years old. Before the COVID pandemic, the typical first-time buyer was in their late 20s or early 30s. At nearly 40, “that’s not enough time to build housing wealth before they retire,” said Yun (left).

Existing home prices increased on an annual basis for the 19th consecutive month in January. The national median sales price rose 4.8 percent from a year earlier to $396,900.

On a positive note, Yun also predicted two or three interest rate cuts from the Federal Reserve in 2025. However, last year marked the third year in a row that mortgage rates ended the year higher than crystal-ball-gazing forecasters expected.

Lenders wait to see how Trump policies impact economy

Some analysts say the odds of further interest rate cuts this year by the Fed dwindled in mid-February as unemployment fell and more lending officials say they want to see how the new aggressive policies being pushed by President Donald Trump impact the economy – policies that include hefty import tariffs on Canada, Mexico, and China, and federal government layoffs.

Inflation fighters at the Fed said in January that they planned to keep their key short-term federal funds interest rate at 4.3 percent to slow borrowing and spending enough to lower inflation back to their 2 percent target.

The Fed’s elevated federal funds rate has contributed to higher borrowing costs for mortgages, auto loans, and credit cards.

A weaker economy would normally lead to the Fed to cut interest rates, but if inflation remains a threat, it would likely keep rates unchanged.