After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023 before descending somewhat in 2024. Many experts and industry authorities believe they will follow a downward trajectory into 2025. Whatever happens, interest rates are still below historical averages.
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.
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The National Association of Home Builders expects the 30-year mortgage rate to decrease to around 6.5% by the end of 2024 and fall below 6% by the end of 2025, according to the group's latest outlook.
At its February 2024 meeting, the Reserve Bank Board decided to leave the cash rate target unchanged at 4.35 per cent. This decision supports progress of inflation to the midpoint of the 2–3 per cent target range within a reasonable timeframe and continued moderate growth in employment.
Fannie Mae expects rates to average 6.4% for the year. Wells Fargo projects a slight decline, with rates averaging around 6.3% by the end of the year. Goldman Sachs predicts rates will remain above 6% through 2025.
Getting back to 5% home loan rates will take time, experts say. "I agree with the most recent MBA forecast, expecting rates to reach 5% in the second half of 2025," says David Druey, Florida regional president of Centennial Bank. However, this is mere speculation — and several factors could change this timeline.
There's Still a Way to Snag a 3% Mortgage Rate. Assumable mortgages are rare but allow buyers to take over a seller's existing debt, offering an avenue to secure lower borrowing costs.
However, without a major downturn or global catastrophe, it's highly unlikely that mortgage rates will drop to their 2020-21 levels. In fact, many economists and housing market experts hope they don't. In the long term, mortgage rates may stabilize between 5.5% and 6%, which is a historically normal range.
As the Federal Reserve conducts monetary policy, it influences employment and inflation primarily through using its policy tools to affect overall financial conditions—including the availability and cost of credit in the economy.
Mortgage rates dropped this week after four weeks of increases. Mortgage rates ticked down slightly this week, a tiny boon to buyers eager to make a move with newly listed homes coming to market.
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.
According to Rachel Sanborn Lawrence, advisory services director and certified financial planner at Ellevest, you should feel OK about taking on purposeful debt that's below 10% APR, and even better if it's below 5% APR.
Current Forecasts and Expert Opinions
The short answer is: It's highly unlikely we'll see mortgage rates drop back to 3% anytime soon. However, recent inflation numbers point to cooling of the pace of inflation.
The Federal Reserve is projected to cut interest rates only three more times in 2025, according to the 2025 Interest Rate Forecast from Bankrate's Chief Financial Analyst, Greg McBride, CFA. Those moves would take their key borrowing benchmark back down to 3.5-3.75 percent — still the highest since 2008.
The current Bank of America, N.A. prime rate is 7.50% (rate effective as of December 19, 2024).
Consumer Demand Decreases
Unless their income increases too, the rising interest rates shrink their disposable income. Because they are paying more for their purchases, they have less money available to buy other items. This “cooling” of consumer spending is the goal of the Federal Reserve when it increases rates.
Projected Interest Rates in the Next Five Years
ING's interest rate predictions indicate that in 2024, rates will start at 4%, with subsequent cuts to 3.75% in the second quarter, 3.5% in the third, and 3.25% in the final quarter. In 2025, ING predicts a further decline to 3%.
Mortgage rates dropped for the third consecutive week after fresh economic data kept expectations about the Federal Reserve's next interest rate cut intact. The average 30-year mortgage rate fell to 6.6% in the week through Wednesday, compared with 6.69% a week earlier, according to Freddie Mac data.