Possibly. McBride expects 30-year mortgage rates to retreat to 6.5 percent by the end of 2025 — but in the nearer term, he sees rates moving higher. “Bond yields are flirting with levels not seen since late 2023, pushing mortgage rates further above the 7 percent mark,” he says.
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.
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.
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 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.
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.
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.
"As we look ahead into 2025, lower CD interest rates are a possibility," says Ben Alvarado, executive vice president at California Bank and Trust. After all, the Federal Reserve lowered its benchmark rate three times in 2024, and many analysts expect there to be at least two more Fed rate cuts in 2025.
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.
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.
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.
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.
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.
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.
Mortgage rates could see more volatility 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 two 0.25% cuts, mortgage rates could inch down closer to 6.25% later in the year.
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.
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.
When you lock the interest rate, you're protected from rate increases due to market conditions. If rates go down prior to your loan closing and you want to take advantage of a lower rate, you may be able to pay a fee and relock at the lower interest rate. This is called “repricing” your loan.
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.
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.
The National Association of Realtors: NAR's quarterly outlook has 30-year mortgage rates ending 2024 at 6.1% and bottoming out around 5.8% toward the end of 2025. After that, we could see rates tick back up to 6.1% in 2026.
The current Bank of America, N.A. prime rate is 7.50% (rate effective as of December 19, 2024).