Mortgage Rates
By RSIR Staff | October 31, 2025
Since 2020, the U.S. Federal Reserve has driven the Federal Funds Rate from near-zero pandemic-era lows to a 22-year high of 5.25-5.50% by mid-2023, in a bid to combat persistent inflation. In its October 29, 2025, meeting, the Fed lowered its target range for the federal funds rate by 25 basis points to 3.75–4.00%. This move marks the second reduction in rapid succession, coming after the September cut to 4.00–4.25 %. At the same time, the Fed emphasized that policy remains restrictive and that inflation risks continue to warrant a “higher-for-longer” stance—a reflection of its dual mandate where both inflation control and employment stability remain central. The Fed hinted that an additional cut in the next meeting wasn’t a “forgone conclusion”.
These shifts have dramatically influenced mortgage rates, affordability, and housing market behavior nationwide. Rates that once hovered near 2.65% in 2021 now average in the low 6% range, creating new dynamics for homebuyers, existing homeowners, and developers alike.
Watch RSIR President and CEO discuss insights into mortgage rate predictions and more with Principal of Gardner Economics Matthew Gardner below.
FED RATES INFLUENCE MORTGAGE RATES
While the Federal Funds Rate does not directly determine mortgage rates, it exerts a strong influence through:
Bond Yields
Mortgage rates closely track the 10-year Treasury yield. Even as the Fed eases rates, long-term yields remain elevated, keeping mortgage rates above the level of the benchmark cut.
Inflation Expectations
Persistent inflation pressures lenders to demand higher yields, sustaining mortgage rates even as policy eases.
Liquidity Conditions
Tighter Fed policy increases the cost of capital across financial markets, which directly impacts loan pricing.
Key takeaway: The Fed’s gradual easing in late 2025 has lowered rates slightly, but structural and market dynamics prevent a rapid return to pre-pandemic levels.
IMPACT ON RESIDENTIAL HOUSING TRENDS
Affordability Crisis Deepened
Monthly mortgage payments remain significantly higher than the pandemic-era lows. For example, a $500,000 mortgage at a 6.3% rate costs approximately $700 more per month than it would have at 3%, curbing purchasing power for many first-time buyers.
Homeowner “Rate Lock-In”
Approximately 80% of U.S. homeowners continue to hold mortgages below 4%. This lock-in effect reduces inventory, as homeowners are reluctant to sell and give up their low-rate loans. In high-demand regions like Seattle and Bellevue, this has contributed to constrained supply despite steady job growth in tech and aerospace sectors.
New Construction Became More Critical
Builders are increasingly relying on incentives, such as rate buydowns and closing cost contributions, to maintain sales volumes. Nationally, housing starts have held steady in suburban and infill markets, though high-rise condominium projects remain largely unprofitable in many urban cores.
Shift Toward Multi-Family & Infill Projects
Developers are prioritizing townhomes, accessory dwelling units (ADUs), and smaller-scale “missing middle” housing. Investors continue to explore build-to-rent and co-living formats to navigate affordability constraints and investor demand.
Market Activity Slowed
Transaction volumes remain below peak levels, though the slowdown is less severe than in mid-2025. Rising listings—though still limited—have slightly improved buyer leverage. King County, for example, reports roughly 2.6 months of supply, offering modest relief to prospective buyers.
Buyer Behavior & Affordability
Cautious buyer sentiment persists. With mortgage rates around 6.3-6.5%, monthly financing costs are elevated, curbing purchasing power and prompting many buyers to explore exurban markets. However, some are leveraging low-rate incentives and “buy then refi” strategies to enter the market strategically.
Rate lock-in effect: Homeowners are largely holding steady, further suppressing inventory and maintaining seller-favored dynamics in many urban and suburban regions.
Inventory & Pricing Dynamics
Inventory: Slightly improved, yet still below historical norms (~2.6 months nationally).
Pricing: Home prices have stabilized or risen modestly (2-4% YoY) in strong metro areas such as Seattle/Bellevue due to tight supply and sustained demand.
Builder Focus: Construction remains concentrated in townhomes, infill units, and small multi-family projects; high-rise condominiums have yet to see new groundbreakings due to financing challenges.
Sales Trends & Market Behavior
Buyer Leverage: Sellers are increasingly offering concessions to maintain sales velocity.
Transaction Pace: Pending and closed transactions continue at a slower, more deliberate pace compared with pre-pandemic levels.
Economic Resilience: Ongoing employment gains in tech, aerospace, and healthcare sectors are sustaining demand in primary and secondary markets.
Fed Meeting Timeline & Expectations
The Federal Reserve has signaled a cautious approach. With the first 25-basis-point cut in September 2025, markets now anticipate one to two additional modest reductions by year-end. Mortgage rates are expected to follow a gradual decline, but structural factors such as Treasury yields and mortgage-backed security spreads mean that rates will remain above pre-pandemic lows for the foreseeable future.
Drivers Behind the Forecast
Fed Cuts Likely Gradual: Analysts project additional cuts of 25-50 bps by the end of 2025, depending on inflation persistence and economic growth.
Mortgage vs. Fed Disconnect: Mortgage rates will likely remain 1-1.5% above Fed policy, influenced by capital market dynamics.
Inflation & Treasury Yields: Elevated core inflation and geopolitical uncertainty could constrain the speed and magnitude of rate declines.
Implications for Homebuyers in 2025
Borrowers may secure rates in the low- to mid-6% range by year-end—still above pre-pandemic levels but meaningfully lower than mid-2025 peaks.
Builder incentives, including rate buydowns and closing cost assistance, remain prevalent, particularly in high-demand metros.
“Buy then refi” remains a viable strategy for financially prepared buyers who expect gradual rate declines.
Strategic insight: In regions like the Puget Sound, buyers now enjoy slightly improved inventory and increased negotiating power. Sellers offering incentives can still maintain pricing, while buyers who are selective and informed can find opportunities for long-term value creation.
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