The Good, the Bad & the Ugly
A 2025 Mortgage Prediction
by David Sober
As housing finance enters another challenging year, the mortgage business in 2025 will be significantly affected by a few emerging trends we may categorize as the good, the bad, and the ugly. Let’s begin with the ugly trends.
The Ugly: Home Prices Will Not Offer Much Help
The overall state of the economy profoundly impacts the housing market. Economic growth, job creation, and rising incomes boost demand for homes and lead to price increases, and we expect this trend to continue.
As the economy grows, businesses are more likely to hire new employees and expand their operations. As people move to new areas for job opportunities, we may see a surge in demand in some areas. When more jobs are available and people are potentially making more money, they are more likely to afford to buy a new home, which can lead to increased demand for housing.
In addition to these factors, the overall state of the economy can also impact the housing market in other ways. For example, when the economy is doing well, people are more likely to be confident about the future and may be more willing to make significant purchases, such as buying a home. Conversely, when the economy is doing poorly, people may be more hesitant to make major purchases, decreasing housing demand.
However, stubbornly high home prices are significantly less likely to fall than interest rates. As long as there is still an inventory shortage, we are not likely to see home values fall. Even if prices do start to ease some, they have settled at a historical high and it is extremely unlikely that we see a dip that is major enough to cause values to drop below this high. For example, a home price that drops from $500k to $475k is significant, but would not move the needle much for affordability, especially with interest rates not budging There are also the so-called “hidden costs” associated with inflated home values, mainly in the form of increased tax burdens, on top of rising insurance costs. Simply put, three out of the four costs associated with owning a home — home prices, taxes, and insurance — are as high as they have ever been.
The Bad: Mortgage Rates Will Not be Dropping Anytime Soon
Headlines remind us that the Fed cut interest rates multiple times in 2024. Woo-hoo. Mortgage rates should follow accordingly, right? Wrong. In 2025, mortgage rates are unlikely to meaningfully fall. The saving grace will be access to alternative lending products as the 30-year, fixed-rate continues to lose market share.
Agents are already taking stock of valuable add-ons that can help close deals. Innovative solutions like the VoxturRateAdvisor, which determines the most cost-effective path forward for homebuyers, will continue to come to market as agent demand surges. Anything that can help homebuyers save cash in this market will be embraced by agents and buyers alike.
The Good: The Title Business Will Harmonize
There are still opportunities to reduce the costs associated with purchasing a home, even when interest rates and home prices remain stubbornly high. One such area is title insurance. For decades, the title business has been hampered by a lack of standardization across states, with varying state regulations impacting the title process for title companies and consumers. The widespread variability has impacted the cost of obtaining title insurance, leaving some consumers feeling like there is a lack of transparency that is driving up costs.
Borrowers have every right to shop for title insurance, even though few actually do. Even if borrowers want to shop around for the right title provider, they may not know enough about the process to navigate it successfully.
It is critical that consumers know they have a choice when it comes to selecting the right title provider. With alternatives to traditional title insurance now available, it is even more important that consumers explore all the options out there. Some in the industry wrongly assert that there are insurance coverage gaps in title alternatives like enhanced Attorney Opinion Letters or that an unproven claims process can negatively affect users. But AOLs are acceptable to the GSEs and many top aggregators – investor acceptance is real. Title alternatives can, in some situations, save consumers hundreds or even thousands of dollars, and consumers should be able to easily determine if this is the case for them.
Today’s consumer has enough challenges to navigate when buying a home, between contending with high home prices and accepting less-than-desirable interest rates. They do not need to contend with a confusing title process as well. It is becoming increasingly clear that greater transparency is key to helping borrowers navigate their home-loan process, including title.
As lenders find more ways to attract borrowers, I believe they will embrace tools that help their clients better navigate their home purchases and feel more transparent.
This is the good that I believe will emerge for homebuyers in 2025.
