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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.
Lawrence Yun, chief economist at the National Association of Realtors, even told CNBC in 2023 that he doesn't think mortgage rates will reach the 3% range again in his lifetime.
So far the decline in mortgage costs from November 2023's peak levels has been bumpy. Despite an overall reduction in borrowing costs over the past two years, the 30-year mortgage rate recently moved up from a little above 6% in September 2024 to closer to 7% in January 2025.
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.
The fed funds target rate is now set at 4.25% to 4.50%. The Fed held rates at 5.25% to 5.50% from July 2023 to September 2024. Between March 2022 and July 2023, the Fed raised rates eleven times, from near 0%. Source: U.S. Federal Reserve, December 18, 2024.
New Projections
This marks a slower pace compared to the four quarter-point cuts previously projected in September. By 2026, the federal funds rate is expected to fall further to 2.9%. Inflation forecasts have also been adjusted upward.
However, interest rates predictions are difficult as any further cuts depend on factors such as what happens with inflation. So predictions will have to be revised. For example, in January 2024, Capital Economics forecast that interest rates would be reduced to 4.00% by the end of 2024.
These futures can also be short-term or long-term. Short-term interest rate futures have an underlying instrument with a maturity of less than one year, while long-term interest rate futures have an underlying instrument with a maturity of over one year.
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.
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.
The lowest average mortgage rates on record came about when the Federal Reserve lowered the federal funds rate in 2020 and 2021 in response to the pandemic. As a result, the weekly average 30-year, fixed-rate mortgage fell to 2.65%, while the average 15-year, fixed-rate mortgage sunk to 2.10%.
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. This will allow the FED to start lowing the FED funds rates soon, most experts predict September will be the first cut.
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.
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%.
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.
For only the third time in 2024, the Federal Reserve has lowered the federal funds rate. On Dec. 18, the Fed cut the rate, which influences interest on everything from car loans to credit cards, by 25 basis points. That takes it from 4.50% to 4.75% to 4.25% to 4.50%, the lowest it's been since February 2023.
His view aligns with the Mortgage Bankers Association's prediction that rates will stay between 6% and 7% throughout the year. Before you make any homebuying decisions, let's look at what might drive rates down toward that 6% threshold – and what could keep them at current levels or even push them higher.
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%
Which bank gives the highest interest rate on FD? As of 2024, Canara Bank offers the highest interest rate of 7.25% for 444 days.
2024: December projection is 4.2%, down from September's 4.4%. 2025: December projection is 4.3%, down from September's 4.4%. 2026: December projection is 4.3%, no change from September.
Oxford Economics is predicitng that base rate will eventually fall to 2.5 per cent in 2027 where it will broadly remain throughout 2028 and 2029.
Fed officials indicated they now expect to cut rates by just a half point in 2025, which would likely mean two rate cuts at their eight policy-setting meetings. That's down from predicting a full percentage point (or four quarter-point cuts) in their September projections.