Fixed income markets anticipate that the Federal Reserve will cut interest rates in 2025, but not by much. Short-term interest rates are expected to end 2025 close to 4%. That's down from the current 4.25% to 4.5% range as of January 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.
"Continued economic growth and worries about inflation and government debt will keep mortgage rates elevated," McBride wrote. Mortgage rates could end 2025 at 6.5%, he predicted.
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.
Key takeaways. The Federal Reserve is expected to lower rates by at least 100 basis points through the end of 2024. As such, primary mortgage rates could fall by as much as 60 bps over the next year — and by even more if the rates market begins to price in more cuts than are currently expected.
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.
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.
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.
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.
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%.
The Fed is widely expected to announce another 25bps cut to the federal funds rate at its December 2024 meeting, marking the third consecutive reduction this year and bringing borrowing costs to the 4.25%-4.5% range.
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.
"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.
But it's also a far cry from the sub-3% mortgage rates borrowers enjoyed back in 2020 and 2021. If you're looking to buy a home, you may be wondering if mortgage rates will ever drop below 3% again. The answer is that it's possible, but unlikely.
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.
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%.
As it stands right now, the general consensus is for mortgage rates to be in the 5-6% range for 2024.
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. That contrasts with longer term mortgage rates holding at historically low levels of between 2% and 3% for much of 2020 and 2021.
According to economic projections released after the meeting, officials expect to cut rates just twice in 2025 — down from four times in their earlier projections — and the minutes show that even those cuts are not guaranteed.
On Dec. 18, the Federal Reserve made its third consecutive cut of 2024, reducing the federal funds rate by 0.25 percentage points.
Strong labor market data combined with recent sticky inflation makes it less likely that the Federal Reserve will cut the federal funds rate anytime soon.