- January's hotter-than-expected CPI data pushed mortgage rates up Wednesday.
- High inflation means the Fed is less likely to lower its benchmark rate, so mortgage rates may not drop at all this year.
- Shopping around with multiple lenders can help you save on your mortgage, even in a high-rate environment.
Initially, it looked like 2025 was going to be the year that mortgage rates finally fell. But with every new piece of economic data, that's looking less and less likely.
On Wednesday, the Bureau of Labor Statistics reported that the consumer price index, a key measure of inflation, rose 3% year over year in January. This was above the forecast of 2.9%, and the highest inflation has been since June 2024.
Higher-than-expected inflation is bad news for mortgage rates, and means that getting a mortgage could get more expensive just in time for the start of the spring homebuying season.
What high inflation means for mortgage rates
Mortgage rates typically track the 10-year Treasury yield, which jumped above 4.6% after January's CPI data was released.
When inflation is high, investors demand better returns on things like bonds and mortgage-backed securities. This causes mortgage rates to go up.
The Federal Reserve also fights high inflation by raising the federal funds rate, which ends up directly or indirectly impacting rates for other types of loans, including mortgages.
At its most recent meeting in January, the Fed kept rates steady after lowering them three times in 2024. Fed officials were initially expecting to cut rates multiple times this year, but it now looks like we may only get one cut in 2025, according to CME FedWatch.
In his testimony before Congress this week, Fed Chair Jerome Powell said that "we do not need to be in a hurry" to cut rates, noting that inflation has been elevated recently while the labor market is still relatively strong.
"If the economy remains strong and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer," Powell said.
Will mortgage rates still go down this year?
Higher inflation and fewer Fed cuts mean that mortgage rates may not drop much this year — or even at all.
In its latest housing forecast, Fannie Mae predicts that 30-year mortgage rates will only drop a little bit this year, going from 6.7% to 6.5% by the end of the year. Just a few months ago, the mortgage investor was anticipating sub-6% rates in 2025.
There's also a possibility that certain policies coming out of the Trump administration could push inflation even higher, which would likely lead to higher mortgage rates.
"For the past two-and-a-half years, we've been talking about how we're heading into a lower-rate environment, how the economy is slowing down, how inflation is easing, mortgage rates and rates in general can come down," Melissa Cohn, regional vice president of William Raveis Mortgage, said in emailed comments. "But once again, we've hit a roadblock, and that roadblock is not just tariffs, but also tax cuts, and immigration policies."
However, it's still early, and some of the policies that economists expect to be inflationary have yet to be implemented. For example, the sweeping tariffs on goods from Mexico and Canada have been temporarily delayed, and Republicans in Congress are still working on plans for tax cuts.
Where rates go this year depends in part on how the economy responds to these potential policy changes. Right now, it's hard to say for certain if mortgage rates will go down at all.
How borrowers can navigate high mortgage rates
If you're planning to buy a home this year, don't wait around for lower mortgage rates. Instead, focus on the things you can control.
One of the best things borrowers can do to ensure they get the lowest rate available and pay less up front in closing costs is to get quotes from a few different mortgage lenders.
"We have a number of papers we've shown that shopping around really benefits you on your rate and what it costs you to get a mortgage," Mark Palim, senior vice president and chief economist at Fannie Mae, told Business Insider.
In a 2022 paper co-authored by Palim, Fannie Mae found that borrowers who didn't get multiple mortgage quotes paid $1,430 more than borrowers who did.
Additionally, look for lenders that offer help for homebuyers. Many of the best mortgage lenders for first-time buyers have things like down payment assistance or credits that can be used to lower your rate.
