"With mortgage rates close to 7% and home
prices at all-time highs, the share of first-time home buyers as a share
of all houses sold has declined from 50% in 2010 to only 24% today," wrote Apollo's chief economist last week. "With fewer new households able to enter the housing market, affordability is putting upward pressure on rents."
Mortgage Rates are Going Nowhere
There's a good chance that mortgage rates will decrease soon, according to experts. But it's hard to find someone credible who believes they'll fall far.
In their latest (May 2025) forecasts for 30-year fixed-rate mortgages:
- Fannie Mae thinks they'll be at 6.1% at the end of 2025 and then average 5.9% through 2026.
- The Mortgage Bankers Association is less optimistic. It reckons they might be down at 6.6% in the last quarter of 2025, going on to average 6.3% through 2026 and 2027.
Yesterday, Freddie Mac put the latest weekly average for those same rates at 6.84%. And it said the average over the last 52 weeks has been 6.69%.
You might wonder whether a drop to 6.3% or 5.9% would be enough to tempt most first-time buyers back into the market. We suspect too many are looking back to that period in 2020 and 2021 when mortgage rates began with a 2 or a 3, and thinking they might settle for something beginning with a 4.
But we know of no expert who thinks such rates are likely for many years. It would likely take an exceptionally nasty recession or depression to get them that low again. So, they may well not recur in our lifetimes.
Why Acting Now May Be Smart
You can see why first-time buyers are steering clear of the housing market. Many are hoping mortgage rates will fall soon. And that would allow them to buy a nicer home than they could currently afford.
However, that could be a mistake for three reasons:
- As suggested above, it could take many years for mortgage rates to fall sharply. Meanwhile, home prices have been rising steadily (with a small wobble recently) and may continue to do so.
- Rising rents (as reported by Apollo, above) make it more difficult to save for a down payment and closing costs. And both those requirements are tied to home prices. If they climb, so will the sums home buyers need for their purchases.
- If mortgage rates do fall, there could be a tsunami of first-time buyers swamping the market with an insatiable pent-up demand for homes. That extra demand with a limited supply would likely push house prices sharply higher, perhaps wholly negating the affordability benefits of lower rates. In other words, many could find themselves having to settle for similar or worse homes than the ones they could buy now.
Of course, we don't claim to be able to predict the future. But that's a far from impossible scenario. And it may be better to act now rather than wait for a perfect home-buying environment that may never come.
