Will interest rates ever go back to 3?
It's possible that rates will one day go back down to 3%, though if current trends hold that's not likely to happen anytime soon.
If the Federal Reserve cuts interest rates too quickly, it could spur inflation, erasing all the work the central bank has done to curb increasing prices over the past couple of years. So, any rate cuts in 2024 are likely to be minimal and unlikely to result in mortgage rates dropping to 3%.
Projected Interest Rates in the Next Five Years
ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter. Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.
According to their predictions based on recent data, Trading Economics anticipates the interest rate to descend to 4.25% in 2024 and 3.25% in 2025. Their forecast suggests that the Fed may need to reduce interest rates in response to a slowdown in economic growth and a decline in inflation.
Rates plummeted in 2020 and 2021 in response to the Coronavirus pandemic. By July 2020, the 30-year fixed rate fell below 3% for the first time. And it kept falling to a new record low of just 2.65% in January 2021. The average mortgage rate for that year was 2.96%.
As a baseline scenario, the 30-year fixed mortgage rate is expected to fall to the low-6% range through the end of 2024, dipping into high-5% territory by early 2025.
Many forecasters expect rates to remain well under 7 percent this year. McBride expects them to drop all the way to 5.75 percent by the end of 2024. “Inflation has been coming down — and coming down faster than expected in recent months — which bodes well for mortgage rates,” says McBride.
The latest Monetary Policy report says rates are expected to remain around 5.25% until autumn 2024 and then decline gradually to 4.25% by the end of 2026. The future of interest rates depends significantly on how quickly inflation drops – while wage growth and unemployment also play a factor.
The 10-year treasury constant maturity rate in the U.S. is forecast to decline by 0.8 percent by 2026, while the 30-year fixed mortgage rate is expected to fall by 1.6 percent. From seven percent in the third quarter of 2023, the average 30-year mortgage rate is projected to reach 5.4 percent in 2026.
The MBA's forecast suggests that 30-year mortgage rates will fall into the 6.1% to 6.9% range in 2024, and NAR's forecast is very similar, predicting that rates will remain in the 6.1% to 6.8% range.
How low will mortgage rates go in 2025?
If all goes well, by the time 2025 comes around, we could see mortgage rates closer to 6%, or maybe even lower.
Last year, the White House projection for bill rates in 2030 was 2.4%. Such a level would be much higher than has been typical since the turn of the century. Three-month bill rates averaged around 1.5% over that period.
According to their latest forecast for 30-year mortgage rates in October 2023, they expect them to range from 7.40% to 7.86%, with an average of 7.63%. They also predict that mortgage rates will peak at 9.41% in May 2024, before gradually declining to 3.67% by November 2027.
Interest rates reached their highest point in modern history in October 1981 when they peaked at 18.63%, according to the Freddie Mac data. Fixed mortgage rates declined from there, but they finished the decade at around 10%.
Mortgage rates have been historic in their own right during the past few years. The average 30-year fixed rate reached an all-time record low of 2.65% in January 2021 before surging to 7.79% in October 2023, according to Freddie Mac.
What were the lowest mortgage rates in history? The lowest recorded rate for a 30-year fixed-rate mortgage was 2.65% in January 2021,This was likely due to the effects of COVID-19.
“So far, the first quarter of 2024 has been very similar to the first quarter of 2023. Inflation has been up in some categories and made rates move more upward than downward. Rates came down at the end of 2023 but the most recent Fed meeting should sign that there won't be any rate cuts until summer 2024.
“Mortgage rates will be at least a full 2% lower by 2025.” She adds that if the inflation rate holds at 2%, then we should see mortgage rates remain at lower levels for the balance of the next five years.
With inflation seemingly under control, the Fed has signaled it could begin cutting interest rates soon, likely around midyear (Fed Chair Jerome Powell has said a March cut is “not likely”.) While the Fed doesn't directly determine mortgage rates, it's likely that lenders will again follow the Fed's lead.
Many prospective homebuyers chose to wait things out in 2023, in the hopes that 2024 would bring a more advantageous market. But so far, with mortgage interest rates still relatively high and housing inventory stubbornly low, it looks like 2024 will remain a challenging time to buy a house.
Will interest rates be better in 2024?
Most major forecasts expect mortgage rates to go down in 2024, but when they'll start trending back down depends on the path that inflation takes in the coming months. Right now, average 30-year mortgage rates are more than 40 basis points higher than they were this time last month.
Legally speaking, there's no limit to how many times you can refinance your mortgage, so you can refinance as often as it makes financial sense for you. Depending on your lender and the type of loan, though, you might encounter a waiting period — also called a seasoning requirement.
CBO projects that interest rates will slowly increase during the next 30 years—reaching 4.6% in 2050. As a result, newly-issued debt will cost the government more.
Goldman said it expects 30-year mortgage rates will drop to 6.3% by the end of 2024, and fall slightly in 2025 to 6% as the Fed starts to cut interest rates. Previously, Goldman had expected the 30-year mortgage rate to be at 7.1% by the end of 2024 and at 6.6% by the end of 2025.
Fixing your mortgage for longer can give you greater certainty as you'll know exactly what your mortgage repayments will be for the next 5 or 10 years. However, fixing for a longer term normally comes with higher interest rates - although rates for 5 year deals are lower than 2 year deals at the moment.
