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%.
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.
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.
Key takeaways. The Federal Reserve is projected to cut interest rates three more times in 2025, bringing the key borrowing benchmark to 3.5-3.75 percent, according to Bankrate's 2025 Interest Rate Forecast from Chief Financial Analyst Greg McBride, CFA.
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.
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.
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.
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.
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.
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.
CD rates have been falling as the Fed cuts the federal funds rate. Further rate cuts are expected in 2025, although the current outlook is less dramatic than originally predicted. CD rates are expected to decline in 2025, but some institutions will still offer above-average CD rates.
The Federal Reserve is projected to lower the federal funds rate (that is, the interest rate that financial institutions charge each other for overnight loans of their monetary reserves) from an estimated 4.6 percent in the fourth quarter of 2024 to 3.4 percent at the end of 2027.
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.
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.
Current Forecasts and Expert Opinions
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.
The Average US Home Could be Worth $382,000 by 2030
House prices in the US have risen by 48.55% in the last ten years (from $173k to $257k) and if they continue to grow at this rate for another decade, the average US home will be worth $382k by 2030.
The current median projection among the central bank's top minds is that the federal funds rate will average 3.4% in 2025 and 2.9% in 2026, down 1% in the next year and 1.5% in the long run.
As of January 9, 2025, the average rate for a 30-year fixed mortgage is 6.93%, while the 15-year fixed mortgage averaged 6.14%, according to Freddie Mac.
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.
Interest Rates—After rising over the past couple years, interest rates are expected to broadly hold steady through 2024. The 91-day Treasury bill rate is expected to average 5.1 percent over 2023 and 2024, before falling to a terminal rate of 2.7 percent in 2031.
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.
Mortgage rates are likely to go down in 2025 as long as inflation continues to slow. If inflation remains sticky, rates might not drop as much.
Housing Market Forecast 2026: Will Prices Rise or Fall
In 2026, the housing market is expected to continue its upward trend, with home prices rising at a moderate pace. The pent-up demand for housing is expected to be supplied between 2025 and 2030, according to the National Association of Home Builders.