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Mortgage rate predictions: Will rates go down in 2024 and 2025?

Yahoo Personal Finance· Getty Images
Aly J. Yale
·Freelance writer
Updated 7 min read

Since late 2022, mortgage rates have jumped to between 6% and 7% — and in fall 2023, they nearly eclipsed 8%, marking the highest 30-year mortgage rate seen in over two decades. 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, but the slash was more significant than originally expected — 50 basis points instead of 25. The central bank also predicts two more rate cuts in 2024 and four in 2025.

So, what does this announcement mean? Will mortgage rates keep going down? Although rates are lower than a couple of months ago, they’re still well above the all-time lows we saw at the peak of the COVID-19 pandemic. When will mortgage rates go down more drastically and make monthly payments more affordable?

Dig deeper: When will the housing market crash again?

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Yes, mortgage rates started falling at the beginning of August 2024. The national average 30-year rate started August at 6.73%, and the 15-year fixed rate was 5.99%. Both rates have since dropped by over 50 basis points.

It may seem weird that mortgage rates dropped before the Federal Reserve cut the federal funds rate — wouldn’t they decrease after the rate cut?

Market rates have actually been falling in anticipation of the fed funds rate cut. By the time the Fed slashed its rate, most decreases had already been baked into mortgage rates. Now, rates could continue to go down after the most recent Fed meeting.

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%. 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.

While the Fed’s moves had largely been successful at lowering inflation, for a long time, it still wasn’t enough. The July 2024 inflation rate came in at 2.9% year over year — still above the central bank’s 2% goal. However, the inflation numbers have been improving from month to month, and August inflation came in at 2.5% year over year, which was the lowest inflation rate since February 2021.

The Fed finally felt ready to act. It decided that inflation was mostly under control and that it was time to cut benchmark rates.

Mortgage rates have already decreased over the past couple of months, but they’re still relatively high at over 6%. When will mortgage rates go down more substantially so home affordability improves?

The answer: Mortgage rates should keep falling in 2024. The larger-than-expected slash to the fed funds rate and an indication that it will cut rates again this year should result in lower mortgage interest rates. Mortgage rates will also likely decrease throughout 2025. The Fed has indicated it plans to slash the federal funds rate four more times next year. Rates should decrease in anticipation of each one, and maybe even a little more after each meeting when the Fed announces a rate cut.

Dig deeper: Current mortgage refinance rates

No crystal ball will tell us when to expect mortgage rate cuts, and rate predictions largely depend on who you ask.

The same day the Fed cut the federal funds rate, Fannie Mae released its September housing forecast. The organization now predicts 30-year mortgage rates will be at 6.2% by the end of 2024 and 5.7% by Q4 2025.

The Mortgage Bankers Association (MBA) September forecast also predicts the 30-year rate will be at 6.2% in Q4 2024, but it's a little more conservative with 2025 expectations — the MBA foresees a 5.8% rate at the end of 2025.

Dig deeper: What determines mortgage rates? It depends.

Mortgage rates have already started to go down, but they’ll probably decrease more over the next couple of years. 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?

While average 30-year fixed mortgage rates sit around 6.20% 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

Yes, expert sources Fannie Mae and the Mortgage Bankers Association predict mortgage rates will gradually decline throughout the remainder of 2024 and 2025.

Mortgage rates have already fallen in 2024, and it looks likely that they'll decrease even more. However, keep in mind that mortgage rate trends are never a given.

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.

There are no sources for officially projected interest rates in five years, Fannie Mae predicts rates on 30-year fixed-rate mortgages will drop to 5.7% by the end of 2025.

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 gradually going down on both 30-year and 15-year mortgages.

This article was edited by Laura Grace Tarpley.