May 2025 Mortgage Rate Forecast: What Tariffs and Inflation Mean for Rates
- Clare R. Okyere
- 1 day ago
- 3 min read
Mortgage rates remain a moving target this spring, shaped by trade policy shifts, inflation updates, and evolving Federal Reserve decisions. While there was some optimism after the latest inflation report, strategic buyers and homeowners should be aware: external pressures like tariffs are still keeping rates higher than many had hoped.
Inflation Is Slowing—But Not Necessarily for Long
The April Consumer Price Index (CPI) showed annual inflation at 2.3%, the slowest pace in recent years. That’s a step in the right direction, but it may not last. Economists warn that recent trade policy changes—especially the 90-day pause on certain tariffs with China—could push prices higher in the months ahead, reigniting inflation concerns.
Tariffs tend to create short-term supply shocks. That may mean goods become more expensive, and in turn, inflation heats up. Mortgage rates, which often move in response to inflation and the bond market, saw a small jump this week.
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Mortgage Rates Tied to Economic Uncertainty
Mortgage rates follow the 10-year Treasury yield closely. When inflation expectations rise, yields (and rates) tend to rise too. Even though the CPI showed some improvement, investors aren’t convinced inflation will cool significantly. And unless we see a deeper economic slowdown—or a sharper drop in inflation—experts don’t expect mortgage rates to dip meaningfully below 6.5% anytime soon.
Keith Gumbinger of HSH.com put it best: “As the inflation picture becomes clearer later in the year, there’s a chance for rates to cautiously move lower.” But barring a full recession, major rate drops are unlikely in the near term.
The Fed Is Playing the Long Game
The Federal Reserve finds itself caught between two key mandates: controlling inflation and supporting employment. After three rate cuts in late 2024, the Fed hit pause this year, most recently holding steady at its May 7 meeting.
Aggressive tariff policies—like those proposed under the Trump administration—make the Fed’s job harder. If trade tensions push prices up again, the Fed may delay any further rate cuts until the job market weakens more significantly. For now, most signs point to borrowing costs staying comparable through at least the first half of 2025.
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Should You Wait for Lower Rates?
This is the question many homebuyers are asking. With high rates, limited housing inventory, and still-high home prices, it’s understandable to be cautious.
But timing the market is tricky—and often counterproductive.
As Gregory Heym, Chief Economist at Brown Harris Stevens, explains: “Trying to time everything perfectly is a losing proposition. Rates could go up or they could go down. The question is: Do you want a home?”
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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
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