March Mortgage Outlook: Hostile Rates, but Friendly Price Cuts

Mortgage rates might remain level for the first two-thirds of March. But they could rise after March 19, when the Federal Reserve's rate-setting meeting ends. The central bankers are likely to disappoint folks counting on a short-term interest rate cut in the first half of the year.

In other words, home buyers face a dreary rate outlook in March. But optimists can spot some rays of sunshine: Buyers have more homes to choose from. Prices keep rising, but not as fast as they used to. And — psst!, don't tell anyone — about one-third of homes on the market have taken a price cut.

So it's not all gloom and doom.

What's up with mortgage rates?

First, let's wade through the dismal swamp of mortgage rates. We'll rinse off with the hopeful stuff afterward.

The 30-year mortgage rate has been stuck above 6.75% all of 2025 so far. The simplest explanation is that the inflation rate remains too high. Lenders stay in business by lending money at above the inflation rate, so high inflation brings high mortgage rates.

Inflation peaked in the middle of 2022, when the consumer price index hit 9%. The Federal Reserve responded by aggressively raising the overnight federal funds rate. That effort worked, and inflation fell. The Fed took a victory lap last fall and reduced the federal funds rate by a percentage point over several months. But the central bank has stood still since December.

What will the Fed do?

Almost no one thinks the Federal Reserve will reduce the overnight rate at the end of its March 18-19 meeting. But observers still expect it to make some rate cuts this year. According to CME FedWatch, market participants expect the next rate reduction to happen on or before the June 17-18 meeting.

But what if those market participants are wrong, and the Fed waits longer to cut? After all, inflation has stubbornly remained above the Fed's 2% target. The CPI stood at 3% in January.

Fed chair Jerome Powell has tried to tamp down expectations of a rate cut happening anytime soon. In congressional testimony Feb. 11, he said in his introductory remarks that "we do not need to be in a hurry to adjust our policy stance."

He repeated that message in response to a senator's question, saying "we think our policy rate is in a good place and we don't see any reason to be in a hurry to reduce it further."

Christopher J. Waller, a Fed governor and member of the rate-setting committee, said in a Feb. 17 speech that "a pause in rate cuts is appropriate" and that "the data are not supporting a reduction in the policy rate at this time."

So Powell and other Fed officials have emphasized that they'll take their time before cutting rates again. If Powell repeats that message after the March 19 meeting, market participants might push back their rate-cut expectations by a few months. That could lift mortgage rates higher.

Reasons for optimism

Maybe you're a home buyer and you feel bummed out at the mortgage rate prognosis. But green shoots are poking out of the ground if you know where to look.

The first bit of good news concerns the growing number of homes for sale. The National Association of Realtors said 1.18 million existing homes were for sale at the end of January, a 14% increase compared to 12 months earlier. At the same time, home builders had 495,000 new homes on the market — the most in 17 years. That's a hopeful sign for buyers because it means they have a greater choice of homes.

Home prices appear to be moderating, too. Nationally, year-over-year home prices rose 4.7% in December 2024, compared to 6.9% in December 2023, according to the Federal Housing Finance Agency. One reason: High mortgage rates force buyers to be extra mindful of prices.

Finally, a lot of home sellers are reducing their asking prices as their properties linger on the market unsold. In late February, 33.2% of single-family listings had taken a price cut from the original list price, according to Mike Simonsen, founder of analytics firm Altos Research, in a YouTube commentary. That's the highest proportion of February price cuts in at least a decade.

"The price cuts data tells me that we have weak home sales pricing for several more months at least," Simonsen says in the video.

That doesn't mean that overall prices are falling — not yet, at least. But if mortgage rates crawl back above 7% and stay there all spring, it's possible that home prices could fall year over year, Simonsen said.

What other forecasters predict

The Mortgage Bankers Association and mortgage securitizer Fannie Mae both predict that the 30-year mortgage will average 6.9% in the first three months of 2025. That was the average rate in the first two months of the year, so these organizations don't expect mortgage rates to change much in March.

February prediction and what happened