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.
Fannie Mae's chief economist says, “Long-run interest rates have moved upward over the past couple of months following a string of continued strong economic data and disappointing inflation readings.” They are putting the average 30-year fixed rate at 6.5% in the beginning of 2025, declining to 6.1% in 2026.
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.
Current Forecasts and Expert Opinions
The short answer is: It's highly unlikely we'll see mortgage rates drop back to 3% anytime soon.
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.
As it stands right now, the general consensus is for mortgage rates to be in the 5-6% range for 2024.
Likewise, we expect the 10-year Treasury yield to move down to an average of 3.0% in 2027 from its current yield of 3.7%. We expect the 30-year mortgage rate to fall to 4.75% in 2027 from an average of 6.75% in 2024. Inflation forecast.
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%.
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.
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.
We forecast existing home sales to total 4.25 million in 2025, an improvement of 4.8 percent compared to our expected 2024 sales pace of 4.06 million, but still down 20.3 percent compared to 2019.
Mortgage points, also called discount points, lower your interest rate for the life of the mortgage. A lender may allow borrowers to purchase as little as a fraction of a point or up to four points. One mortgage point typically costs 1% of your loan and permanently lowers your interest rate by about 0.25%.
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.
Interest Rate in the United States is expected to be 4.50 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations. In the long-term, the United States Fed Funds Interest Rate is projected to trend around 3.50 percent in 2026, according to our econometric models.
Last year, the White House projection for bill rates in 2030 was 2.4%. Such a level would be much higher than has been typical since the turn of the century. Three-month bill rates averaged around 1.5% over that period.
"While I'd love to say rates will drop below 6% in 2025, I think it's a moderate probability and not a certainty," says Steven Parangi, a licensed mortgage loan originator and owner of Alpine Mortgage Services.
The length of your mortgage term affects the balance between stability and flexibility. A 5-year fixed term provides long-term protection from rate fluctuations, offering stability throughout the term.
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.
Though mortgage rates have fallen from their 8% peaks, the decline has been slow and gradual. Over the past 12 months, the average 30-year fixed mortgage rate has fluctuated between 6.5% and 7.5%. Most housing economists had expected mortgage rates to drop to 6% by the end of 2024, moving into the mid-5% range in 2025.
More homes on the market in 2025 may create better opportunities for buyers. Higher inventory means fewer bidding wars, which may keep home prices more stable. Falling mortgage rates could also ease the cost of buying a home, though it may take time.
Monthly payments remain the same for the life of the loan for traditional fixed-rate loans, but the portion that goes toward interest will decline while the principal portion increases.
The current Bank of America, N.A. prime rate is 7.50% (rate effective as of December 19, 2024).
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.