What will happen to interest rates?
After the last meeting meeting, the Fed predicted three quarter-point cuts by the end of this year. As time goes on, however, that becomes less of a certainty. Some economists have even suggested rates won't budge until March 2025.
In its April Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.8% in the first quarter of 2024 to 6.4% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the fourth quarter of 2025.
Mortgage rate predictions 2024
NAR believes rates will average 7.1% this quarter and fall to 6.5% by the end of 2024. While there's some dispute on exactly how much rates will decrease, the general consensus is that mortgage rates will go down later in 2024 and end up in the mid-to-low 6% range.
After all, higher rates equate to higher minimum payments. So, you may be wondering if, and when, mortgage rates might fall to 3% or lower again - and whether or not it's worth waiting to buy a home until they do. Although rates could fall to 3% again one day, it's not likely to happen any time soon.
In May 2024, the average 2 year fixed rate is 4.74%. While this is a significant drop from its July 2023 peak of 6.86%, it's still much higher than December 2021 when was 2.34%.
The average 30-year fixed mortgage rate as of Thursday was 6.99%. By the final quarter of 2025, Fannie Mae expects that to slide to 6.0%.
Interest rate predictions in the UK in 2025 and beyond suggest a period of cautious adjustment following the expected easing in 2024. Bank of England interest rate forecasts for 2025, informed by market analysts and financial institutions, anticipate rates to stabilise around 3-3.4%.
The nation's top economists say the Fed is most likely to keep interest rates higher than 2.5 percent — often considered the “goldilocks,” not-too-tight, not-too-loose level for its benchmark federal funds rate — until the end of 2026, Bankrate's quarterly economists' poll found.
The general consensus among industry professionals is that mortgage rates will slowly decline in the last quarter of 2024. The projected declines have shrunk, though, in recent months. At the start of the year, for instance, Fannie Mae predicted rates would drop to 5.8%.
Investors currently anticipate that the Bank will begin cutting rates in the middle of the year, reducing them to just over 3% by 2026. The Bank's forecasts did little to dissuade them that these cuts are coming, though Mr Bailey said the moment had not yet come.
How much does a 1 percent interest rate affect a mortgage?
Mortgage rates increase in increments of 0.125%, and although one percent may seem like an insignificant amount, a quick glance at the numbers would tell you otherwise. As a rough rule of thumb, every 1% increase in your interest rate lowers your purchase price you can afford for the same payment by about 10%.
The good news is that inflation is cooling, and many experts expect interest rates to move in a downward direction in 2024. Then again, a two-point drop would be significant, and even if rates fall, they're not likely to get down to 5% within the next year.
| Loan Type | Purchase | Refinance |
|---|---|---|
| FHA 30-Year Fixed | 6.84% | 6.82% |
| VA 30-Year Fixed | 6.52% | 6.39% |
| 20-Year Fixed | 7.06% | 7.23% |
| 15-Year Fixed | 6.40% | 6.49% |
Once you find a rate that is an ideal fit for your budget, lock in the rate as soon as possible. There is no way to predict with certainty whether a rate will go up or down in the weeks or even months it sometimes takes to close your loan.
Interest rates are expected to move lower in 2024, according to the CME's FedWatch Tool, measuring the implied expectations of interest rate futures. Currently there's just a 10% chance of an interest rate cut in June, but that rises to 30% for July and come September lower interest rates are more likely than not.
CBA, Westpac, and NAB predict that interest rates will come down in 2024 at the earliest and 2025 at the latest, potentially bringing the cash rate into neutral territory of around 3%, while ANZ researchers suggest the cuts may be further down the road. Either way, there may be mortgage relief on the horizon.
For people looking to buy a home, a recession can bring some advantages. When the economy is not doing well, home prices often drop, which can be good news for those who want to find a good deal; plus, during recessions, mortgage rates usually stay low, meaning buyers can get a home with lower monthly payments.
A basis point is one one-hundredth of a percentage point. Nonetheless, many housing market experts still expect mortgage rates to recede over 2024— but that largely depends on when the Federal Reserve decides to cut interest rates.
There is no limit on how many times you can refinance your mortgage, although lenders may enforce a waiting period, typically around six months, known as a 'seasoning' requirement.
The average 30-year fixed mortgage rate as of Friday is 6.91%. By the final quarter of 2025, Fannie Mae expects that to slide to 6.0%.
Where will interest rates be in 2026?
| Federal Reserve | ECB | |
|---|---|---|
| Q1 2026 | 3.7% | 2.6% |
| Q2 2026 | 3.5% | 2.6% |
| Q3 2026 | 3.3% | 2.6% |
| Q4 2026 | 3.1% | 2.6% |
By Q4 2024, we expect the average mortgage rate on a 75% 5-year fixed product to fall to 3.82%, down from 4.86% in Q4 2023. Following on from this, we expect mortgage rates to continue falling over the next five years.
Interest Rates for 2021 to 2027. CBO projects that the interest rates on 3-month Treasury bills and 10-year Treasury notes will average 2.8 percent and 3.6 percent, respectively, during the 2021–2027 period. The federal funds rate is projected to average 3.1 percent.
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.
Fed Blames 'Lack of Progress' on Inflation. You'll likely pay more to borrow until at least 2025, but now may be the time to lock in higher savings rates.
