Though the central bank doesn't directly set the rates for mortgages, keeping interest rates high makes the cost of borrowing more expensive, including for home loans. Experts still predict mortgage rates will drop to the low-6% range by the end of 2024.
Analysts with Fannie Mae and the Mortgage Bankers Association (MBA) both project that rates will fall going into 2024 and throughout next year. Fannie Mae economists expect rates to drop more quickly, falling below 6% by Q4 2024. Meanwhile, the MBA's forecast for Q4 2024 is 6.1% and 5.9% for Q1 2025.
Many experts predict interest rates will remain at their current level for most of 2024. This may mean that mortgage rates stay at or about the same level as now for many months before possibly starting to fall towards the end of 2024.
Mortgage rates are going to stay above 6% through 2025, according to estimates from Goldman Sachs. Goldman said the decline in mortgage rates should offer marginal improvements in housing affordability. The average 30-year mortgage rate fell to 6.62% last week after hitting a cycle-high of 7.8%.
Projected Interest Rates in the Next Five Years
ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.
Sure, mortgage rates could fall to 3% at some point, but chances are that's not going to happen anytime soon. Moreover, waiting for rates to drop before you buy your home could backfire. Instead, consider buying your house now and refinancing your mortgage when rates improve.
According to the latest forecasts, UK Interest Rates are predicted to fall from 5.25% to 4.25% by the end of 2024. UK interest rates forecast for the next 5 years are to remain higher for longer than has been the case over the last two decades, with UK interest rates staying between 3% and 4%.
The 10-year treasury constant maturity rate in the U.S. is forecast to decline by 0.8 percent by 2026, while the 30-year fixed mortgage rate is expected to fall by 1.6 percent. From seven percent in the third quarter of 2023, the average 30-year mortgage rate is projected to reach 5.4 percent in 2026.
While the shift in monetary policy has spurred a sharp drop mortgage rates this quarter, Fannie Mae noted a limit to how far these rates will fall: it projects that the 30-year fixed rate will average 6.7% in 2024, before falling to 6.2% in 2025.
The latest Monetary Policy report says rates are expected to remain around 5.25% until autumn 2024 and then decline gradually to 4.25% by the end of 2026. The future of interest rates depends significantly on how quickly inflation drops – while wage growth and unemployment also play a factor.
The average two-year fixed rate mortgage is currently 5.93 per cent, according to Moneyfacts. That compares to 5.54 per cent for five-year fixes. Those with the biggest deposits or with larger equity stakes in their home can also do much better when fixing for five years, rather than two years.
The UK economy towards the end of 2023 is struggling, with the cost of living and high mortgage rates causing the housing market to slow down and house prices to start falling. It's been predicted by Zoopla that house prices are expected to fall by 2% in 2024, with mortgage rates also expected to fall.
The U.S. Federal Reserve is currently expected to cut interest rates by a little more than 1% over the course of its seven remaining scheduled meetings of 2024. This may leave short-term interest rates at approximately 4% by December 2024, based on market forecasts.
During a traditional recession, mortgage rates typically drop. Home prices can drop as well, with fewer qualified buyers and less competition for homes. However, there are still plenty of risks during any economic downturn, and today's high-rate climate is not exactly traditional.
But we expect the Fed will begin cutting rates in March 2024—bringing the federal-funds rate to 3.75%–4.00% by the end of 2024. We expect the Fed to continue cutting until early 2026, ultimately bringing the federal-funds rate down by over 300 basis points.
As it continued its work to tame inflation, the Federal Reserve issued rate hikes in the first half of 2023, which had a knock-on effect on mortgages. As inflation cooled later in the year, the Fed opted not to raise rates at meetings in early November and mid-December, setting the stage for rate cuts in 2024.
ING predicts rates to range from 5% in the second quarter of 2023, rising to 5.5% in the third quarter, and then falling back to 5% in the final quarter of the year. They also predict interest rates ranging between 3% and 4.25% in 2024, staying at 3% by the end of 2025.
By 2025 through 2028, given the large run-up from 2021 through 2023, home prices are predicted to rise more gradually at about a percentage point above the rate of inflation, for an estimated increase of 13% to 14% from 2023 levels.
Freddie Mac, Fannie Mae and Mortgage Bankers Association
In its November 2023 Mortgage Finance Forecast, the Mortgage Bankers Association (MBA) anticipates 30-year rates starting in 2024 at 7.1% and gradually declining to 6.1% at the close of the year before dipping as low as 5.5% in 2025.
According to their latest forecast for 30-year mortgage rates in October 2023, they expect them to range from 7.40% to 7.86%, with an average of 7.63%. They also predict that mortgage rates will peak at 9.41% in May 2024, before gradually declining to 3.67% by November 2027.
Meanwhile, the latest forecast from the National Association of Home Builders puts interest rates at 6.89% to finish 2023 in its October predictions. The organization says that the 30-year fixed rate will be 6.79% in 2024 and 5.72% in 2025.
What will UK Interest Rates be in 5 Years? The Bank of England predicts that UK interest rates will be 4.4% in quarter two of 2024. Rates are likely to decrease further to 3.8% in the second quarter of 2025 and reach 3.6% in 2026. Beyond this, it is increasingly difficult to predict UK interest rates.
In its January Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.9% in the first quarter of 2024 to 6.1% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the first quarter of 2025.
It expects a rate of 5.1% for 2024, one of 4.5% for 2025 and a rate of 4.2% for 2026.
Markets think interest rates could stay high for a decade or more.