After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023 before descending somewhat in 2024. Many experts and industry authorities believe they will follow a downward trajectory into 2025. Whatever happens, interest rates are still below historical averages.
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.
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.
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.
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%.
However, interest rates predictions are difficult as any further cuts depend on factors such as what happens with inflation. So predictions will have to be revised. For example, in January 2024, Capital Economics forecast that interest rates would be reduced to 4.00% by the end of 2024.
The bottom line. Predicting exactly when mortgage rates will hit 5% is difficult. It could happen by late 2025, but market conditions could speed up or delay this timeline. "Some consumers feel rates will drop in the next two to four months [but] that may never happen," says Rathbun.
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 unlikely to drop below 4% in 2024
'Economists currently expect base rates to fall to 3.5% by the end of 2025, which would imply mortgage rates remaining in and around the 4%+ range. '
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.
Mortgage rates dropped this week after four weeks of increases. Mortgage rates ticked down slightly this week, a tiny boon to buyers eager to make a move with newly listed homes coming to market.
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.
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.
Mortgage interest rates have risen over five percentage points since bottoming out in January 2021 at 2.65%, peaking at 7.79% in October 2023. Since then, rates have eased to around 6.2% in September 2024.
Will Mortgage Rates Ever Go Down to 3% Again? While it's possible that interest rates can return to 3% territory in the future, it's highly unlikely that it'll happen anytime soon. In fact, some experts say it may take decades for mortgage rates to return to the levels homebuyers enjoyed just a few years ago.
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.
Recessions can be great times to buy a home. Sellers are motivated, interest rates may be lower and there may be less competition among buyers. The combination of lower interest rates and potentially lower housing prices can bring homes that were out of reach before the recession within reach.
With indicators such as hiring and economic growth showing signs of strength, Fannie Mae and the Mortgage Bankers Association predict 30-year rates will decrease to 6.6 percent by the end of the year. Not too long ago, Fannie expected rates to fall all the way to 6 percent in 2024.
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.
"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.
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%
As a result, we expect the Bank to cut interest rates from 4.75% now to 3.50% in early 2026, further than the low of 4.00% that investors currently expect.
Mortgage rates dropped for the third consecutive week after fresh economic data kept expectations about the Federal Reserve's next interest rate cut intact. The average 30-year mortgage rate fell to 6.6% in the week through Wednesday, compared with 6.69% a week earlier, according to Freddie Mac data.