Déjà Vu? What to Expect From the Housing Market in 2025’s Final Stretch 

In mid-September, the Federal Reserve lowered the target federal fund rate by 25 basis points (bps) to a 4 percent to 4.25 percent range, citing concerns over a weakening labor market and downside risks to employment outweighing relatively modest inflationary pressures. The move was widely anticipated following weaker than expected July and August jobs reports.

Average 30-year mortgage rates fell sharply to a 12-month low of 6.25 percent, a notable decline from the 6.8 percent to 7 percent range that prevailed during the peak spring homebuying season. This marked a welcome shift for both buyers and sellers after a sluggish spring and summer. The lower rates are expected to draw some buyers back into the market, particularly those who had been holding out in hopes that political pressures might steer the Fed to pivot toward easing rates. For others, the latest decline could already mean being able to qualify for loans and cheaper rates—the difference between affordability and inaccessibility. 

The recent movement in mortgage rates was somewhat reminiscent of 2024, when the Fed made three consecutive rate cuts beginning in September, responding to signs of a softening labor market and easing inflation. At the time, in anticipation of the 50-basis-point rate cut, 30-year fixed mortgage rates dropped nearly 100 bps between the peak of the spring homebuying season to the time of the Fed’s decision, and mortgage rates remained in the low 6 percent range throughout most of October. Home sales rebounded sharply in the fourth quarter, posting double-digit year-over-year gains to lift total sales in 2024 to above the previous year’s level, which effectively ended the post-pandemic housing recession.

However, after the Fed’s second and third rate cuts in October and December, mortgage rates and long-duration bond yields reversed course and climbed higher as markets grew more concerned about inflationary pressures from monetary easing amid signs of resilient labor market, consumer spending, and economic strength. 

Source: Texas Real Estate Research Center analysis of Data Relevance Project, Texas REALTORS data 

Will 2025 echo 2024? It’s a question weighing on many market watchers as the year enters its final stretch with two more Federal Open Market Committee (FOMC) meetings still ahead. The near-term path forward for mortgage rates will depend on a combination of key economic indicators, including labor market dynamics, GDP growth, and inflation trends. Adding complexity to the near-term outlook is the government shutdown, which is impacting the timely release of key data like the jobs report. How policymakers interpret and balance incoming signals will determine how much flexibility the Fed has on lowering short-term rates, given its dual mandates of full employment and price stability. 

So far, mortgage rates have eased only modestly. Although the year began with lower rates than in 2024, they’ve remained above 2024 levels since August. Buyers across the country are still cautious amid continued home price softening, while several regional markets, most notably across the Sunbelt states, are seeing outright price declines.  

In Texas, home sales are gaining modest momentum following a sluggish spring market. As mortgage rates improved, pending sales surged 9.2 percent year-over-year in July, followed by gains of 5.4 percent in August and 1.7 percent in September. Year-to-date, total sales are now 1.7 percent above 2024 levels. The direction of mortgage rates in the coming weeks will remain a key driver of housing activity for the remainder of 2025. 

Views expressed on The 338 are those of the authors and do not imply endorsement by the Texas Real Estate Research Center, Division of Research, or Texas A&M University.