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After falling to a 2024 low of about 6.1% in anticipation of the Federal Reserve starting to cut rates, 30-year mortgage rates have rebounded significantly. In fact, over the past couple of months, the average rate on a 30-year fixed-rate mortgage has climbed by about a full percentage point. According to the latest data from Mortgage News Daily, the average 30-year mortgage rate now sits at 7.13%.

Although rates are elevated now, there could be good news ahead. In fact, Fannie Mae and the Mortgage Bankers Association both predict mortgage rates that start with a 5 by the end of 2025. While home prices aren’t expected to fall anytime soon, you might be surprised at how much of a difference lower mortgage rates could make for home affordability.

7.13% is just the average. Click here to see what rates you could get from the top mortgage lenders.

The average home price isn’t likely to come down

Home prices have risen significantly, with the average U.S. home price up by 51% over the past five years. And unfortunately, they aren’t expected to get any lower. In fact, Zillow’s latest forecast predicts a 1.1% rise in home values over the next year.

This means that the average home value in the United States, which is currently $359,892, would be roughly $364,000 in a year.

Mortgage rates could make homes far more affordable

Even if home prices rise slightly over the next year, as Zillow predicts, that would have a relatively low impact on home affordability — especially if mortgage rates come down significantly.

Let’s consider the example of someone who wants to buy an average U.S. home, which as mentioned, is worth just under $360,000 today (we’ll use this round number for simplicity). They want to make a 20% down payment, which means they would need a $288,000 mortgage.

Based on today’s average 30-year mortgage rate of 7.13%, this means that their monthly mortgage payment, including national averages for taxes and insurance, would be $2,523.

On the other hand, let’s say in a year from now, someone buys an average-valued home for $364,000 with 20% down. But by this point, the average 30-year mortgage rate has fallen to 5.5%. Even though the home itself cost $4,000 more, the monthly payment on this home would be $2,240 — nearly $300 less than at today’s mortgage rates. If rates fell even further — say, to 5% — the payment would drop to $2,152.

To put it mildly, a monthly difference of $300-$400 could have a big impact on home affordability for families in the United States.

No guarantees, but signs are pointing toward lower rates

Of course, there’s no guarantee that we’ll actually see 5% mortgage rates in 2025. And to be thorough, some experts could revise their mortgage forecasts upward after the recent election results.

However, the most likely path for mortgage rates is still lower. The Federal Reserve just cut its benchmark interest rate for a second time in 2024 and is widely expected to make several more rate cuts throughout 2025. And if we do see significantly lower mortgage rates, it could go a long way toward making homeownership more affordable.

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Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zillow Group. The Motley Fool has a disclosure policy.