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When will mortgage rates go down? A look at 2024 and 2025.
Since late 2022, mortgage rates have jumped to between 6% and 7%. Rates started to drop this summer in anticipation of the Federal Reserve cutting the federal funds rate by 25 basis points at its Sept. 18 meeting.
The Fed did indeed announce a rate decrease at the September meeting, then again at its November meeting. Many expected mortgage rates to start falling in response to the Fed's rate cuts — but for the most part, mortgage interest rates have been increasing. This is due in part to a strong economy and an increasing 10-year Treasury yield. So, when will mortgage rates go down significantly enough to make monthly payments more affordable?
Dig deeper: When will the housing market crash again?
In this article:
Are mortgage rates already decreasing?
Yes and no. Let's start with the good news.
Yes, mortgage rates have decreased significantly since autumn 2023. In early Nov. 2023, the 30-year fixed mortgage rate was 7.50%, and the 15-year fixed rate was 6.81%. Both rates have dropped by over 70 basis points since then.
Now for the bad news: No, mortgage rates have not been decreasing since the Fed's first rate cut in September. They've remained stagnant at times and even increased.
Basically, shorter-term rates have increased, but the longer-term interest rates have decreased pretty significantly.
When will mortgage rates go down?
To gauge when mortgage rates will go down more dramatically, it’s important for home buyers to understand why they increased in the first place.
For the most part, it has to do with inflation. As inflation rose, the Federal Reserve pushed up its interest rates to tamp down spending. The central bank increased its benchmark federal funds rate — the rate at which banks borrow money from each other — 11 times throughout 2022 and 2023, raising it from nearly 0% to the range of 5.25% to 5.50%.
Finally, the Fed cut the federal funds rate again at its meeting on Sept. 18, 2024, to 4.75% to 5.00%. At its November meeting, the central bank decreased the rate again to 4.50% to 4.75%. Mortgage rates aren't directly tied to the Fed rate, but the two are correlated. Typically, mortgage rates increase when the Fed implements rate hikes and decrease when it enforces rate cuts.
Now that the fed funds rate is down, buyers may expect mortgage rates to keep dropping too. But the anticipation of the September rate slash had already pushed rates down before the Fed announcement even happened. People also expected the November rate cut and knew it would be smaller, which kept rates from decreasing.
Mortgage rates probably won't plummet in 2024 unless the Fed throws us a curveball, such as slashing its rate even more than expected at its next meeting. The Fed expects to cut the federal funds rate several times in 2025, which could bring down rates next year. However, rates will probably stay high longer than expected in response to the presidential election results.
How long? It's too soon to say.
Dig deeper: How the Federal Reserve impacts mortgage rates
Mortgage rate predictions
No crystal ball will tell us when to expect mortgage rate cuts, and rate predictions largely depend on who you ask.
According to its October forecast, the government-sponsored enterprise (GSE) Fannie Mae predicts 30-year mortgage rates will be at 6% by the end of 2024 and 5.6% by Q4 2025.
The Mortgage Bankers Association (MBA) October forecast was more conservative. The MBA expects the 30-year rate will end 2024 at be at 6.3%, then reach 5.9% by Q4 2025.
Dig deeper: What determines mortgage rates? It depends.
Should you wait for lower mortgage rates to buy a house?
Mortgage rates are lower than this time last year. They will probably decrease in 2025, but the changes might not be as significant as people once hoped. So, is it worth it to hold out for lower rates? The answer is different for everyone, but to start, run the numbers.
“For people waiting for rates to come down, I often show the payment now versus a percent lower,” Beeston said. “They are often shocked by how little the difference is. The impact of a rate drop on your payment is far more dramatic at a $1 million purchase than a $100,000 one.”
Below is an example of what a rate drop may mean for your mortgage payment toward the principal and interest on a $250,000, $500,000, or $1 million mortgage.
Read more: How much is a mortgage on a $500,000 house?
Beyond this, you should also think about housing market conditions. Though lower mortgage rates could shave a little off your monthly payment, there may be more competition for properties when rates fall. This could cause home prices to increase and result in bidding wars (which also drive up prices).
As Luchaco explained, “Home prices aren’t likely to come down in any significant way, and while rates may decline, this will likely only lead to more people getting into the market and creating greater demand for housing — pushing home prices up all over again.”
That’s why most experts recommend buying a home when the time — and numbers — work for you. If you need to get out of the rent race and can qualify for a rate and payment you can afford, take the plunge, experts say. You can plan to refinance if rates drop later on.
“From where I sit, the cost of waiting will continue to hurt the buyer, even in today’s rate environment,” Christiansen said. “The longer the buyer waits, the more they lose the opportunity to improve their net worth.”
If you buy sooner rather than later, you have a chance to start building home equity.
Dig deeper: Which is more important, your interest rate or house price?
How to get a lower mortgage rate
While average 30-year fixed mortgage rates sit a little over 6.75% right now, the exact rate you’ll get on a mortgage depends on many factors, like your loan amount, credit score, mortgage lender, and more.
To ensure you’re getting the best mortgage rate possible, compare mortgage lenders. Get a Loan Estimate from each, and see how rates and fees measure up. According to Freddie Mac, shopping around can save you between $600 and $1,200 per year.
You can also work on improving your credit score since borrowers with higher scores tend to get lower interest rates.
Finally, consider an interest rate buydown. When you buy down your rate, you either permanently or temporarily lower your interest rate in exchange for an up-front fee on closing day. Talk to your mortgage loan officer if you’re interested in this strategy.
Learn more: 5 strategies to get the lowest mortgage rates
Mortgage rate prediction FAQs
Are mortgage rates predicted to drop?
Yes, expert sources Fannie Mae and the Mortgage Bankers Association predict mortgage rates decline a little in 2024, then gradually throughout 2025.
Will mortgage rates go down in 2024?
Mortgage rates have already fallen in 2024, but the bulk of the decreases are probably over. Economists expect rates to keep falling in 2025, though.
Will mortgage rates ever go down to 3% again?
Mortgage rates have only ever been at 3% or lower in extreme times, specifically during the peak of the COVID-19 pandemic. Economic conditions would need to deteriorate significantly for rates to fall that low again.
What is the mortgage rate forecast for the next five years?
There are no sources for officially projected interest rates in five years, but the Mortgage Bankers Association has published predictions through 2027. The MBA expects 30-year fixed rates to be at 6% in 2027.
Are mortgage rates going down?
The average rate on 30-year loans has held steady in the 6% to 7% range for most of the last two years, but mortgage rates are down significantly since this time last year. Short-term rates have been increasing, though.
This article was edited by Laura Grace Tarpley.
