"As we look ahead into 2025, lower CD interest rates are a possibility," says Ben Alvarado, executive vice president at California Bank and Trust. After all, the Federal Reserve lowered its benchmark rate three times in 2024, and many analysts expect there to be at least two more Fed rate cuts in 2025.
It's possible that rates will one day go back down to 3%, though if current trends hold that's not likely to happen anytime soon.
In its statement announcing the cut, the Fed now projects just two interest rate cuts for 2025.
Fannie Mae: Rates Will Average 6.4% in 2025 and 6.1% in 2026. The December Housing Forecast from Fannie Mae puts the average 30-year fixed rate at 6.6% in the beginning of 2025, declining to 6.1% in the first quarter of 2026.
However, nearly every economic forecast is predicting lower rates in 2024. The Mortgage Bankers Association's Mortgage Finance Forecast for September 2023 predicts 30-year fixed mortgage rates will be in the 5% range for most of 2024: Q1: 6.1% Q2: 5.8%
The National Association of Realtors predicts mortgage rates will be around 6 percent in 2025. Meanwhile, Redfin predicts mortgage rates will remain in the high-6 percent range throughout 2025, with the weekly average rate fluctuating throughout the year but averaging around 6.8 percent.
Federal Reserve officials made their third and final rate cut of 2024 at their meeting on Wednesday. They also forecast two fewer rate reductions in 2025 than they had previously expected, as inflation lingers and the economy holds up.
Expert Projections of Interest Rates in the Next Few Years
2025: 3.4% 2026: 2.9% 2027: 2.9% (according to Federal Reserve Bank members and presidents, the median projection for rates after 2026 is 2.8% with a range of 2.4% to 4.9%)
At the September 2024 Federal Open Market Committee (FOMC) meeting, the Federal Reserve (Fed) lowered interest rates by 50 basis points, easing monetary policy for the first time in four years due to progress on the Fed's dual mandate. This lowers the interest rate target to a range of 4.75% to 5%.
Why mortgage rates won't drop to 2% again. Again, when mortgage rates hit record lows early in the pandemic, the federal funds rate was near zero. Barring another major economic shock, the Fed projects that the federal funds rate will only take modest adjustments downward over the next several years.
Mortgage rates have tended to fall in response to recent recessions.
The forecasts are conditioned on a path for the cash rate broadly in line with expectations derived from surveys of professional economists and financial market pricing; the cash rate is assumed to remain around its current level of 4.35 per cent until the middle of 2024 before declining to around 3.2 per cent by the ...
Today's rates seem high compared with the recent 2% rates of the pandemic era. But experts say getting below 3% on a 30-year fixed mortgage is unlikely without a severe economic downturn.
'“ Mortgage rates fluctuated significantly in 2023, with the average 30-year fixed rate going as low as 6.09% and as high as 7.79%, according to Freddie Mac. That range narrowed in 2024, with a spread of 6.08% to 7.22%.
The bottom line. Predicting exactly when mortgage rates will hit 5% is difficult. It could happen by late 2025, but market conditions could speed up or delay this timeline. "Some consumers feel rates will drop in the next two to four months [but] that may never happen," says Rathbun.
and then projects that mortgage interest rates – in particular the 30-year fixed rate, which is closely tied to the federal funds rate and the 10-year Treasury note yield – will remain elevated, and only decline 0.2 percent from 6.5 percent in 2025 to 5.9 percent in 2027.
With indicators such as hiring and economic growth showing signs of strength, Fannie Mae and the Mortgage Bankers Association predict 30-year rates will decrease to 6.6 percent by the end of the year. Not too long ago, Fannie expected rates to fall all the way to 6 percent in 2024.
A line chart titled "US federal funds target rate" that tracks the metric over time. The interest rate was lowered 0.25 percentage points in December. U.S. central bankers now project they will make just two quarter-percentage-point rate reductions by the end of 2025.
The current Bank of America, N.A. prime rate is 7.50% (rate effective as of December 19, 2024).
Locking in early can help you get what you were budgeting for from the start. As long as you close before your rate lock expires, any increase in rates won't affect you. The ideal time to lock your mortgage rate is when interest rates are at their lowest, but this is hard to predict — even for the experts.
Whereas previously the ESR Group had expected mortgage rates to dip below 6 percent in early 2025, the revised forecast now shows mortgage rates ending 2025 at 6.3 percent and remaining above 6 percent through 2026.
Key takeaways. The Federal Reserve is projected to cut interest rates three more times in 2025, bringing the key borrowing benchmark to 3.5-3.75 percent, according to Bankrate's 2025 Interest Rate Forecast from Chief Financial Analyst Greg McBride, CFA.