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.
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.
The Fed last cut the fed funds rate by 25 basis points on Dec. 18, 2024, taking the target range to between 4.25% and 4.50%. The CME Group forecasts a 97.3% likelihood it will keep to that range after the January gathering. The odds of another 25-basis point cut, to between 4.0% and 4.25% are only 2.7%.
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.
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% Q2: 5.8%
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.
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.
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.
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 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%.
Mortgage rates have tended to fall in response to recent recessions.
Today's rates seem high compared with the recent 2% rates of the pandemic era. But experts say getting below 3% on a 30-year fixed mortgage is unlikely without a severe economic downturn.
Current mortgage interest rates in California. As of Monday, January 13, 2025, current interest rates in California are 7.33% for a 30-year fixed mortgage and 6.61% for a 15-year fixed mortgage.
There is technically no limit to how many times you can refinance your home. If you meet the lender's qualifications and it makes financial sense for your situation, you can refinance as often as you wish. However, just because you have the option to refinance multiple times doesn't mean it's always a wise choice.
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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.
"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.
Lower rates may not lead to better deals
“Even by the end of next year, it's hard to see sub 6 percent mortgage rates,” said Mark Fleming, chief economist at First American, which predicts the average rate on a 30-year mortgage will range between 6% and 6.5% next year, per a report from The Hill.
Yes, mortgage interest rates will fall in November
Despite the October uptick in mortgage rates, the average has dropped from 6.86% in July to its current rate of 6.57% as of October 29, 2024. However, some developments in November may cause home loan rates to reverse course.
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.
The Fed has announced a quarter-point rate cut on December 18 — its third consecutive rate cut of 2024. The Fed's decision impacts the interest rate on a range of financial products, so you may see rates change on mortgages, loans, lines of credit, credit cards and banking accounts.
How much rates go down depends on how the economy evolves. If economic conditions remain stable, mortgage rates may not fall as much. Rates are unlikely to drop back down to the historic lows of 2020 and 2021, when 30-year fixed rates fell below 3%. But we could see them settle in closer to 6% by the end of next year.
In December 2024, 30-year mortgage rates averaged around 6.42%, according to Zillow data. Average 15-year mortgage rates were 5.82%.