What to expect in mortgages, investing, banking, and credit cards

Last year saw a significant expansion of the economy: inflation fell, as did interest rates. Unemployment rates remained low, and the S&P 500 rose more than 20%. But with the incoming new administration, changing fiscal policies, and the ongoing recovery from the pandemic, what does 2025 hold for us?

See our predictions for next year and how your personal finances could be affected.

A few months ago, many people expected mortgage interest rates to fall throughout 2025. Now, as economists react to uncertainty about how markets will respond to a Trump presidency, expectations for interest rates are becoming less optimistic. Experts at Zillow, Redfin, Fannie Mae and the Mortgage Bankers Association expect rates to remain above 6% in 2025.

Read more: When will mortgage rates go down? A look to 2025.

Home inventory and pricing

Unfortunately, consumer demand for housing remains far higher than supply. According to Freddie Mac, nearly 5.8 million new homes have been built in the United States in the past four years — but demand has risen at about the same rate.

“It took us about a decade to get into this housing deficit, and it will likely take us about a decade to get out of it,” said Rob Dietz, chief economist for the National Association of Home Builders.

When the number of potential home buyers is greater than the number of homes for sale, the state is in a seller’s market, causing housing prices to rise. This is good news for current owners getting home equity but tough news for buyers trying to find an affordable home.

Dig deeper: Housing Market 2025 – Is This a Good Time to Buy a Home?

Next year is expected to be an interesting one for investors. In the United States, business-friendly management, low interest rates, and potential corporate tax cuts may support earnings growth. But high valuations have many investors on edge.

The S&P 500 should deliver modest returns in 2025, with volatility along the way. Marta Norton, chief investment strategist at Empower, which offers retirement plans, expects large companies to benefit from improving macroeconomic conditions and the continued adoption of artificial intelligence.

Norton cites valuation as an “important countervailing force.” Valuation in this context refers to stock prices compared to earnings and other business fundamentals. When valuations are high, investors pay more for earnings – usually with the expectation of strong growth. If growth is disappointing, it can lead to volatility.

Small and mid-cap stocks in 2025

Small and mid-cap stocks may outperform the S&P 500 in 2025. The driving force will be the huge benefits small businesses should see from lower interest rates and potential corporate tax cuts.

According to David Rosenstruck, director of Wharton Wealth Planning, small and medium-sized companies are likely to rely heavily on variable-rate debt, while larger companies prefer fixed-rate facilities. Variable rate borrowers immediately benefit from rate cuts because their obligations are quickly repriced. Existing fixed-rate debt does not adjust to lower interest rates until it is refinanced.

Tax cuts can favor small and medium-sized companies because most of their revenues are typically generated in the U.S. “Lowering the corporate tax rate may provide greater relief to these asset classes compared to larger caps, whose geographic revenue sources are more diversified,” Rosenstruck explains.

Read more: Stock Market Predictions for 2025: 4 Experts Weigh in

When it comes to banking, experts say consumers can expect changes in the new year, especially regarding the federal funds rate.

“We expect the Fed to take a more gradual approach to easing next year, initially moving to 25 basis point cuts at every other meeting before pausing mid-year. We expect the Fed to cut 25 basis points,” said Sophia Kearney Lederman. basis in the first and second quarters of 2025, which puts the federal funds rate target at 3.75% to 4.0%, and then we expect the Fed to pause until the end of the year.” At FHN Financial.

“Our 2025 federal funds rate forecast is based on two key assumptions: inflation will rise in the middle of next year, reflecting pressures from one-time tariffs, and the unemployment rate will fall due to changes in immigration policy, including smaller-scale deportations.” “. Which was suggested on the campaign trail. This combination of upside inflation risks and downside unemployment rate risks is what we expect will give the Fed a pause in easing in 2025.

If the federal funds rate falls as expected, the interest you earn on savings, money market accounts, high-yield savings accounts, and CDs may also decline.

Read more: A look at the federal funds rate over the past 50 years

Since the Fed began lowering the target range for the federal funds rate earlier this year, we have actually seen some credit card interest rates decline. In the new year, experts expect the Fed to cut interest rates further — but we’ll have to wait and see how quickly they do it and how far interest rates will fall.

Related to: How does the Federal Reserve affect your credit card interest rate?

in Yahoo Finance Invest 2024 Conference In November, Minneapolis Fed President Neel Kashkari said the Fed “will have to wait and see what the data says” to determine its interest rate decisions in 2025. Recently, some expert forecasts suggest the pace of interest rate cuts may slow In 2025…

If the Fed cuts interest rates further, you’ll likely see credit card interest rates continue to fall as well. But like 2024, that doesn’t mean you’ll see a huge difference in your APR. Average interest rates on credit cards Still above 21%. Even if the Fed’s target interest rate range drops by a full percentage point or more, you shouldn’t wait to start paying down your balances — it won’t make much of a difference to your APR, and waiting at a rate higher than that could leave you with mounting debt.

Read more: What credit cardholders should know in 2025