When Will Mortgage Rates Go Down? A Look at 2024 and 2025

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Explore the future of mortgage rates in 2024 and 2025. Understand the factors affecting mortgage rate fluctuations and predictions for future trends.

Since late 2022, mortgage rates have risen sharply, reaching between 6% and 7%, and nearing 8% in fall 2023, marking the highest in over two decades.

Combined with increasing home prices, these higher rates have significantly raised mortgage payments. The median monthly mortgage payment on new home purchases, as reported by the Mortgage Bankers Association, now stands at $2,219 — up 2.5% from a year ago. This surge has sidelined many potential home buyers and discouraged current homeowners from selling, given that approximately 9 in 10 hold rates below 6% and are reluctant to relinquish these lower rates.

This scenario prompts the question: How long will these elevated rates persist? And when might consumers expect mortgage rates to decrease enough to ease monthly payments? Let's delve into what we know.

When Will Mortgage Rates Go Down?

To gauge when mortgage rates might decrease, it's crucial to understand the reasons behind their increase.

Primarily, inflation plays a key role. As inflation rates rose, the Federal Reserve responded by raising its interest rates to curb spending. Throughout 2022 and 2023, the central bank increased its benchmark federal funds rate from nearly 0% to the current range of 5.25% to 5.50%. While mortgage rates aren't directly tied to the Fed rate, they often rise in response to increases in the Fed's rate.

Despite the Fed's efforts to combat inflation, the May 2024 inflation rate stood at 3.3% year-over-year, well above the central bank's target of 2%. Consequently, the Fed has maintained higher interest rates in hopes of further reducing inflation.

These prolonged higher rates are also keeping mortgage rates elevated. Until the Fed perceives inflation as under control and begins to lower its benchmark rate, mortgage interest rates are likely to remain high, according to experts.

"For rates to improve, we need to see a decrease in inflation figures, a slowdown in new job creation, and potentially an increase in unemployment claims," explained Evan Luchaco, a home loan specialist at Churchill Mortgage in Portland, Ore., via email. "These are all economic indicators of a slowdown that would prompt the Fed to take action to lower the Fed funds rate, thereby exerting downward pressure on mortgage rates."

Luchaco anticipated that this process could begin towards the end of the year, although this timeline remains uncertain. Currently, the CME FedWatch Tool, which gauges investor activity to forecast future Fed actions, indicates a possibility of a minor rate cut at the Fed's September meeting — though only one rate cut is expected this year.

"To see rates decrease, we need to observe a decline in inflation," noted Jennifer Beeston, senior vice president of mortgage lending at Guaranteed Rate, via email. "Based on current economic indicators, this could potentially occur in the fall, although predictions have proven inaccurate over the past two years."

Mortgage Rate Predictions

Predicting mortgage rates involves considerable uncertainty, depending largely on the source consulted.

Industry projections indicate that mortgage rates are expected to gradually decrease over the next couple of years, as illustrated by two major players:

Expert mortgage rate predictions

Both forecasts suggest a downward trend in rates over the coming years, albeit at a slow pace. Experts caution against expecting significant drops, such as the 3% to 4% rates experienced during the peak of the COVID-19 pandemic.

"A substantial rate reduction would only occur in the event of a severe recession in the U.S.," remarked Neil Christiansen, a home loan specialist at Churchill Mortgage in Denver, via email. "If the Fed perceives economic deceleration and stagnation, it could implement substantial rate cuts to stimulate economic activity. However, current trends do not indicate a significant rate reduction in the near future."

Should You Wait for Lower Mortgage Rates to Buy a House?

While rates are anticipated to decline over the next few years, the reduction may not be substantial. Is it worthwhile to hold out for lower rates? The answer varies for each individual, but a practical approach involves evaluating the financial implications.

"For those awaiting rate decreases, I often illustrate the current payment versus a slightly lower rate," Beeston explained. "Many are surprised by how minimal the difference is. The impact of a rate decrease on your payment is more pronounced with a $1 million purchase than with a $100,000 one."

Below is an example of how a rate reduction could affect mortgage principal and interest payments for mortgages valued at $250,000, $500,000, or $1 million.

Mortgage rates impact monthly payments

Furthermore, consider the conditions of the housing market. While lower mortgage rates might marginally reduce your monthly payment, they could also intensify competition for properties, potentially driving up home prices and triggering bidding wars.

As Luchaco pointed out, "Significant declines in home prices are unlikely, and while rates may decrease, this could prompt more individuals to enter the market, thereby increasing demand for housing and subsequently raising prices."

Therefore, most experts advise purchasing a home when the time and financial circumstances align. If you're ready to exit the rental market and qualify for a manageable rate and payment, consider taking action. You can always refinance if rates drop further down the line.

"From my perspective, delaying your purchase will continue to disadvantage buyers, even in the current rate environment," Christiansen emphasized. "Home prices are consistently rising by 5% to 6% annually, and with depreciation and loan repayment, prolonged delay only diminishes the opportunity to enhance your net worth."

Purchasing sooner rather than later provides the opportunity to begin accumulating home equity.

Dig Deeper: Is Now a Good Time to Buy a House?

How to Get a Lower Mortgage Rate

Although average 30-year fixed mortgage rates hover around 7% presently, your exact rate depends on various factors, including loan amount, credit score, mortgage lender, and others.

To secure the best possible mortgage rate, compare offers from multiple lenders. Obtain a Loan Estimate from each to evaluate rates and associated fees. According to Freddie Mac, shopping around can save between $600 and $1,200 annually.

Additionally, work on improving your credit score, as borrowers with higher scores often qualify for lower interest rates.

Lastly, consider an interest rate buydown. This strategy involves permanently or temporarily lowering your interest rate in exchange for an upfront fee at closing. Consult your mortgage loan officer for more information.

Learn More: 5 Strategies to Get the Lowest Mortgage Rates

Mortgage Rate Prediction FAQs

Will mortgage rates go down in 2024?
Mortgage rates may decrease in 2024, although this isn't guaranteed. The Mortgage Bankers Association forecasts a rate of 6.6% by year-end, while Fannie Mae projects 6.7%.

Will mortgage rates ever return to 3%?
Mortgage rates have only reached 3% or lower during exceptional circumstances, particularly at the peak of the COVID-19 pandemic. Significant economic deterioration would be necessary for rates to plummet to this level again.

What will mortgage rates look like in five years?
Official projections for mortgage rates five years from now aren't available. However, the Mortgage Bankers Association anticipates a 30-year mortgage rate of 6% by the end of 2025, with Fannie Mae predicting 6.3%.

Are mortgage rates decreasing?
Currently, mortgage rates aren't undergoing significant downward movement. Average rates for 30-year loans have generally held steady between 6% and 7% over the past two years.

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