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.
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 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.
Mortgage rates averaged 6.6% for 30-year, fixed-rate loans in the week ending Dec. 12, according to the latest Freddie Mac data. The financial markets expect the Fed will only lower rates twice in 2025. This is likely to push mortgage rates down, at least a little.
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.
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.
Mortgage costs stayed stubbornly high in 2024, with 30-year fixed rates holding well above 6% for most of the year. Unfortunately for buyers, 2025 isn't looking much better. The Federal Reserve has been cutting interest rates, making the cost of borrowing for loans, credit cards, and auto financing cheaper.
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.
However, without a major downturn or global catastrophe, it's highly unlikely that mortgage rates will drop to their 2020-21 levels. In fact, many economists and housing market experts hope they don't. In the long term, mortgage rates may stabilize between 5.5% and 6%, which is a historically normal range.
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.
January is the most wonderful mortgage time of the year
For borrowers looking to get the best rates, January offers the most competitive pricing with lenders offering a nearly 20 bps discount compared to the rates offered in June through October.
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.
Strong labor market data combined with recent sticky inflation makes it less likely that the Federal Reserve will cut the federal funds rate anytime soon.
Where will mortgage rates go in 2025? Aside from typical day-to-day fluctuations, mortgage rates are expected to stay above 6.5% for the next few months. If inflation continues to cool and the Fed is able to carry out its projected two 0.25% cuts, mortgage rates could inch down closer to 6.25% later in the year.
Some economists are forecasting that interest rates will drop further, possibly to 3.25% or 3.5% by the end of the year. However, stubborn inflation could hold back the pace of interest rate cuts. The market is currently pricing in two rate cuts in 2025. Bear in mind that the mortgage rate is just one aspect of a deal.
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%
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.
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.
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.
What happens if you lock in a mortgage rate and it goes down? If you're locked in and mortgage rates fall, you'll be stuck paying the higher rate unless your rate lock includes a float-down option. A float-down option lets you honor your locked-in rate or the current rate, whichever is lower.
The Bottom Line. No one likes high interest rates, but they're not the end of the world. This is still a great time to buy a house—you'll just pay more than you would've a few years ago. It's also a good time to sell a house.
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.