Current Mortgage Trends: Are Mortgage Rates Going Down? (2024)

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• Inflation and Fed hikes pushed mortgage rates up to a 20-year high in 2023 and 2024.
• Mortgage rates have dropped a lot recently, and they're expected to trend down further this year.
• Homebuyers might consider buying now and refinancing later to avoid increased competition when rates drop.

Good news for borrowers: The wait for lower rates may soon be over. As inflation slows and the economy cools off, mortgage rates have been trending down, and they're expected to fall further in the coming months and years.

The not-so-good news: Rates probably won't go back to the historic lows we saw in 2020 and 2021. And once rates fall, homebuyers will likely have other challenges to contend with, including increased competition and rising home prices.

Understanding mortgage rates and their impact on the housing market

Mortgage rates fluctuate from day to day and even hour to hour, and where mortgage rates are trending can have a major impact on homebuying demand.

When mortgage rates are low, homebuying demand typically goes up. Low rates boost buying power and make it easier for potential buyers to afford a home purchase. However, an increase in demand can put upward pressure on home prices, erasing some of that benefit.

High mortgage rates typically have the opposite effect on demand. Because getting a mortgage becomes more expensive, many buyers drop out of the market to wait for rates to go back down. This can help keep prices from rising too much, but that's not always the case.

As home prices rose to record highs in 2022 and 2023, many would-be home sellers chose to stay in their homes rather than sell and have to give up their historically low mortgage rates. This phenomenon, deemed the "lock-in effect," constrained housing supply and pushed prices up, since there weren't enough homes on the market to meet buyers' needs.

Factors influencing mortgage rates

Mortgage rates are determined by a number of different economic influences, including investor demand for mortgage-backed securities, the current rate of inflation, Federal Reserve policy, and even geopolitical uncertainty.

In general, mortgage rates tend to go up when the U.S. economy is doing well or growing quickly, while slowing growth or a recession can push rates down.

Rates also vary by state, so where you live can determine how much you'll pay to get a mortgage. Your individual financial profile, including your credit score, down payment, and debt-to-income ratio, will help determine the exact rate you get as well.

Current mortgage rate trends and analysis

Why are mortgage rates so high?

Mortgage rates initially dropped to historic lows in 2020 and 2021 after the Fed cut the federal funds rate to near zero to avoid a pandemic-induced recession. Then, as the Fed quickly raised rates to combat record high inflation, mortgage rates climbed.

Inflation has slowed significantly since it peaked in June 2022, when prices had risen 9.1% year over year, according to the Bureau of Labor Statistics. In July 2024, the consumer price index was up just 2.9% year over year, a downtick from the previous month's reading.

As long as inflation continues to cool, the Fed is expected to start lowering its benchmark rate this year. This should help mortgage rates ease.

What are today's mortgage rates?

Mortgage rates have been trending down for several months now, which is good news for borrowers. But compared to where they've been in the last decade, rates are still relatively high today. This has kept homebuying demand low.

Predictions and future outlook for mortgage rates

Mortgage rate predictions 2024

Most major forecasts expect rates to continue to fall throughout the remainder of this year and 2025. But exactly when will mortgage rates go down? It depends on the economy and how quickly the Fed opts to lower rates.

In the last few months, mortgage rates have dropped more quickly than most forecasts anticipated. According to Freddie Mac, 30-year mortgage rates ended August at 6.35%. Rates could ease further in the next few months.

Will mortgage rates go down in 2025?

Most major forecasts predict rates will continue to drop throughout 2025. The Mortgage Bankers Association sees rates ending next year at 5.9%, while Fannie Mae predicts rates will end up around 6% by the end of 2025.

When will mortgage rates go down 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.

Think about the reason rates went so low in the first place: In response to the COVID-19 pandemic, the Fed slashed rates and purchased a large number of mortgage-backed securities to stave off an economic crisis. This allowed mortgage rates to drop as low as they did, with 30-year mortgage rates reaching an all-time low of 2.65% in January 2021, according to Freddie Mac.

No one can predict exactly when another economy-altering event like the pandemic will occur, but barring something extreme, we likely won't see rates that low again for a while. Lawrence Yun, chief economist at the National Association of Realtors, even told CNBC last year that he doesn't think mortgage rates will reach the 3% range again in his lifetime.

Projected interest rates in 5 years

Mortgage rate forecasters typically don't project out very far because rates are impacted in large part by the economy, which is often unpredictable or volatile.

The MBA believes that 30-year rates could end 2026 around 5.9%, but that's as far as its forecast goes.

Based on current conditions, mortgage rates may continue to trend down for the next year or two before settling in at a more steady rate in the following years. How low rates will go depends on the economy.

It's possible in a few years we could see rates drop below 5%, which is generally where they remained throughout the previous decade. But it's also possible that sort of drop could be the result of a larger economic downturn. Rates could also rise unexpectedly if, for example, inflation starts rising again.

Should I wait for mortgage rates to drop before buying a house?

Because mortgage rates are still relatively high, some hopeful homebuyers have decided to wait for lower rates to start shopping for homes. But that's not necessarily the best strategy, as there are some advantages to buying right now.

At the moment, the vast majority of borrowers have rates that are much lower than current rates. According to a Redfin analysis of Federal Housing Finance Agency data, 89% of homeowners had a mortgage rate below 6% in the third quarter of 2023. Many had rates that were even lower; 59.4% had a rate below 4%.

High rates have kept many of these homeowners from selling, since they don't want to give up their current rates. While this has severely limited inventory, the lack of additional buyers on the market has also kept prices somewhat moderate.

Afifa Saburi, capital markets analyst for Veterans United Home Loans, says that buying now and refinancing later is a good strategy for buyers who want to avoid competition and the higher home prices that will likely come with it.

"Would-be buyers that have the ability to buy can avoid a potentially competitive market by locking in a purchase now and taking advantage of a refinance in the future," says Saburi.

A mortgage refinance replaces your existing mortgage with a new mortgage, often with the goal of getting a lower rate or lower monthly payment. If you can afford to buy a house now, you could avoid a tough housing market later this year or next year and have the opportunity to lower your housing costs with a refinance once rates fall. Just be sure to shop around and get quotes from multiple mortgage refinance lenders to be sure you're getting the best rate.

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