The Fed boosted its benchmark federal funds rate numerous times throughout 2022 and the first half of 2023, finally holding rates steady at a target range of 5.25% to 5.50% through the second half of 2023. Rates may eventually begin to decline in 2024.
Changes to Interest Rate Projections
In CBO's last full set of economic projections, which were released in February, the organization estimated that interest rates on the federal funds rate would rise to a fourth-quarter average of 4.8 percent in 2023 before falling to 2.6 percent by mid-2025.
Mortgage rate predictions 2024
The MBA's forecast suggests that 30-year mortgage rates will fall into the 6.1% to 6.9% range in 2024, and NAR's forecast is very similar, predicting that rates will remain in the 6.1% to 6.8% range.
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%.
The Federal Reserve held the federal funds rate steady and signaled multiple rate cuts could come next year.
After the pandemic, inflation skyrocketed. In response, the Federal Reserve started increasing interest rates to cool the pace of rising prices, hiking its benchmark rate 11 times. Now that inflation has slowed—from more than 9% to 3.4%—the Fed expects to hold rates steady before cutting them in 2024.
In September, projections showed that the majority of Fed voters expected the federal funds rate to end 2023 at 5.6%. A majority of those Fed officials also expected the benchmark rate to be 5.1% at the end of 2024.
The bottom line
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.
Experts still predict mortgage rates will drop to the low-6% range by the end of 2024.
Even so, most housing market experts expect rates to decline over 2024, especially once the Federal Reserve begins cutting the federal funds rate—the overnight borrowing rate for commercial banks and credit unions that indirectly influences mortgage rates.
At the start of 2023, economists predicted that mortgage rates would gradually decline throughout the year, but that forecast didn't come true. In fact, rates trended higher, reaching a new peak of 7.79% in late October, according to Freddie Mac.
Mortgage rates change all the time. So a good mortgage rate could look drastically different from one day to the next. Right now, good mortgage rates for a 15-year fixed loan generally start in the high-5% range, while good rates for a 30-year mortgage typically start in the mid-6% range.
To combat ongoing inflation, it raised the federal funds rate 11 times between March 2022 and July 2023. After its December 2023 session, the Fed forecasted it would make three quarter-point cuts by the end of 2024 to lower the benchmark rate to 4.6%.
While interest rates usually fall early in a recession, credit requirements are often stricter, making it challenging for some borrowers to qualify for the best interest rates and loans. Consider the worst-case scenario: You lose your job and interest rates rise as the recession starts to abate.
The Federal Reserve Bank took a wait-and-see approach to further rate hikes as it held its overnight interest rate steady in November.
The current Fed rate is 5.25% to 5.50%.
Current Situation. The Fed is currently raising interest rates to counteract inflation. The policymakers expect rates to stay above 5% in 2024 and around 4% by the end of 2025.
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 Mortgage Interest Rate Forecast 2025
Monthly variations are expected, culminating in a year-end rate of 6.54%, reflecting an overall decline from the initial point.
Rates plummeted in 2020 and 2021 in response to the Coronavirus pandemic. By July 2020, the 30-year fixed rate fell below 3% for the first time. And it kept falling to a new record low of just 2.65% in January 2021. The average mortgage rate for that year was 2.96%.
Why are mortgage rates so high? The recent surge in mortgage rates results from several factors, most significantly the Federal Reserve's policy of increasing short-term interest rates. Hiking interest rates has long been the Fed's primary tool for battling high inflation.
The Fed has announced that they will not raise interest rates this month. The general consensus among officials is that inflation will continue to trend downward. The Fed has left open the possibility of another interest rate hike before the end of the year, but remains optimistic that rates will decline in 2024.
After putting rate hikes on pause at their June meeting, the central bank bumped up interest rates by 25 basis points in July. Following a series of rate increases that now total eleven, the target policy rate is currently a lofty 5.25%–5.5% – the highest it's been in 22 years.
The National Association of Realtors estimates rates will average 6.3 percent for the full year. Still, mortgage rates aren't easy to predict. “A lot of us forecasted we'd be down to 6 percent at the end of 2023,” says Sturtevant.