Mortgage rates will be high throughout 2025 even as the Fed lowers borrowing costs, Goldman Sachs says

Housing affordability isn’t set to get much better next year, Goldman Sachs analysts say.

In the bank’s 2025 Housing Outlook, the analysts forecast mortgage rates will remain elevated, even as the Federal Reserve cuts interest rates.

They expect mortgage rates to stay above 6% next year and end 2025 at 6.1%. According to Freddie Mac data, the 30-year fixed-mortgage rate was 6.54% as of October 24, up from a 6.36% four-week average.

“Our strategists expect mortgage rates to remain elevated for the foreseeable future,” the analysts, led by Jan Hatzius, said in a Monday note.

They pointed to a variety of technical factors, including lower rates volatility and a rebound in demand for mortgage-backed securities that will help close the gap between risk-free rates and mortgage rates.

They also explain that while mortgage rates fell in anticipation of the Fed’s initial rate cut last month, they likely won’t fall further since current mortgage rates are already pricing in the bond market’s expectations for a series of rate cuts from the Fed this year and next year.

Mortgage rates are influenced by the Fed’s rate cuts, though they are more directly tied to the 10-year Treasury, which has been rising since the Fed’s September meeting.

As a result, what really matters for rates is how much the Fed eases compared to expectations, the analysts say.

“What matters more is how much the FOMC actually eases relative to what is expected, and our own expectation for six 25bp cuts over the next year does not differ substantially from current market-implied expectations,” they said.

The analysts say such sustained high rates will likely make for lower sales activity next year, since a majority of mortgage borrowers have locked in interest rates below current market rates. That strongly disincentivizes owners from moving.

“Sustained higher mortgage rates will continue to have their most pronounced impact on housing turnover, and the recent run-up in rates is likely to push existing home sales lower in the coming months,” the analysts said.

They expect existing home sales to rise to 4.1 million in 2025, 23% below 2019 figures and just slightly above their forecast of 4.0 million for this year.

With fewer people moving, that should boost home renovations, they said.

“With most homeowners locked into low-rate mortgages, lower rates will likely disproportionately boost spending on renovations, which can be partially financed by historically high levels of home equity currently worth around 135% of GDP,” the analysts wrote.