Real Estate in 2025: Mortgage Rates, Affordability, and the Impact of Tariffs

The 30-year fixed-rate mortgage just hit its lowest point in 2025, dropping to 6.76%, according to Freddie Mac. While this marks six consecutive weeks of rate declines, the response from home buyers has been muted. Despite improved affordability, mortgage applications remain stagnant, and pending home sales just hit a record low in January.

So, what’s happening? Why aren’t buyers rushing in?

For a $2 million home purchase, the monthly mortgage payment with 20% down at 6.76% would be approximately $10,390. Compare that to when rates peaked at 7.04%—the drop in rates now translates to a savings of roughly $300 per month. Is that enough to spur buyers into action? For some, it might be, but for many, the broader economic picture is still a major factor.

Jessica Lautz, deputy chief economist at the National Association of Realtors, notes that home buyers may be taking a "wait-and-see" approach. The uncertainty of inflation, home prices, and economic trends has many sidelined despite the rate cuts.

If you’ve been holding off on buying a home, hoping for significantly lower mortgage rates, you might be in for a longer wait than expected. And if life events—like a growing family, a job relocation, or marriage—are pushing you to move, waiting indefinitely may not be a viable option.

Exploring Alternative Financing in Today’s Market

Since mortgage rates aren’t predicted to drop as much as once thought, it may be worth looking into creative financing solutions that could help you secure a home sooner rather than later. Here are three options to discuss with your lender to determine what might work best for you.

1. Assumable Mortgages

An assumable mortgage allows you to take over the seller’s existing loan, including their lower interest rate. Given that over 11 million homes qualify for this option, according to U.S. News, it’s an attractive route to explore for buyers looking to avoid today’s higher rates.

2. Adjustable-Rate Mortgages (ARMs)

ARMs typically offer lower initial interest rates compared to traditional 30-year fixed loans, making them appealing—especially for buyers who anticipate refinancing in the future or expect rates to decrease.

If concerns about past housing crises make you hesitant, it’s important to note that today’s ARMs are much safer than those from the early 2000s. As ResiClub Co-Founder Lance Lambert explains, earlier versions of ARMs were risky because lenders didn’t always verify a borrower’s ability to pay when rates adjusted. Now, “adjustable-rate borrowers qualify based on their ability to cover a higher monthly payment, not just the initial lower payment.”

3. Mortgage Buydowns

A buydown enables you to pay an upfront fee to temporarily lower your mortgage rate, easing your monthly payments in the early years of homeownership. This approach has been gaining traction—27% of agents report that first-time buyers are increasingly asking sellers for buydowns to make home purchases more affordable.

Tariffs Add Pressure to Home Construction Costs

Adding to affordability concerns, home construction costs are set to rise 4%–6% in the next year, according to a CoreLogic analysis. Combined with inflation, that could mean a total 10% increase in material prices—raising the cost of home construction by $170,000–$220,000 on a $2 million build.

Here’s where the biggest tariff burdens fall:

• Canadian Wood Products: Tariffs on Canadian wood jumped from 8% to 15%, shifting lumber sourcing to states like Oregon and Washington.

• Chinese Steel: Expected to drive up commercial construction costs significantly.

• Mexican and Canadian Concrete & Cement: With 25% of U.S. cement being imported, tariffs could hit large-scale projects hardest.

• Housing Fixtures: Appliances, lighting, and cabinetry may see 10%–20% price hikes.

The New Reality: Rates in the 6-7% Range

While buyers may be waiting for sub-6% rates, economists warn that wishful thinking won’t bring them back. Robert Dietz, chief economist for the National Association of Home Builders, puts it bluntly:

“Buyers who are waiting for 4% rates… that is not going to happen. The new normal is the high 6% range, at least for this year.”

Homeowners with equity from rising home values may be tempted by builder incentives, including mortgage rate buy-downs. Some are making the move, drawn by financial perks that make the math work.

Ali Wolf, chief economist at Zonda, reinforces this trend:

“We have so many customers today that need financial support in order to have the math make sense.”

What’s Next?

Despite the rate decline, the housing market remains in limbo. Buyers are hesitant, inventory is still tight, and affordability is a challenge. But life happens—job relocations, growing families, and changing needs will eventually drive movement.

As 75% of outstanding mortgages are predicted to have rates below 6% by the end of 2025, the so-called “lock-in effect” will begin to fade. More homeowners will list their properties, and buyers will adjust to the new rate landscape.

The question now is: Will you wait and risk paying more later, or will you make a move before the competition picks up?

Holding off for the 'right time' could mean paying a higher price later

If homeownership is on your horizon, waiting for a dramatic drop in interest rates may not be the best strategy. With inflationary pressures and tariffs driving up costs, the reality is that everything—homes, materials, and even rental prices—is only getting more expensive. Trying to perfectly time the market could end up costing you more in the long run.

Final Thoughts

Instead of waiting, consider how creative financing solutions can help you secure a home or investment property now while maximizing your purchasing power. Whether you’re looking to buy a home or expand your real estate portfolio in Los Angeles, we’re here to guide you through every step of the process. From exploring the best financing options to negotiating the most favorable terms, we’ll ensure you make a smart and strategic move.

Don't let uncertainty hold you back. Reach out today to start the conversation, and let’s find a way to turn your real estate goals into reality—before prices climb even higher.