When Will Mortgage Rates Go Down?

Nov 12, 2024

12-minute read

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Whether you’re in the market to buy a home or refinance your current one, interest rates are probably on your mind. They make a huge impact on affordability. It’s natural to ask yourself, “When will mortgage rates go down?” The truth of the matter is your guess is as good as anyone else’s. But there are indicators you can follow to try to get a glimpse into the future.

Mortgage Rate Predictions

If there’s ever someone out there who can predict the future, I think what mortgage rates would be would fall somewhere very further down the list of questions. Being that no one has been able to make conclusive predictions with perfect clarity, the job of any consumer is at best to take in the information and decide what they believe.

That doesn’t stop industry participants from having opinions on where things are headed. Summarized below are the thoughts of a few major players in real estate and housing finance:

  • National Association of Home Builders (NAHB): The construction trade group sees rates for 30-year fixed mortgages averaging 5.94% in 2025 and 5.69% in 2026.
  • Fannie Mae: As one of the prominent backers of conventional mortgages, Fannie Mae has to keep its finger on the pulse of the housing market. The company sees rates falling to 5.7% in 2025 for a 30-year fixed.
  • Freddie Mac: The other major backer of conventional loans sees rates falling slowly but steadily in the coming years, with the caveat that economic conditions could change that.

When Will Home Loan Interest Rates Go Down?

Trying to predict timing gets into crystal ball territory and anything we told you would be a wild guess. However, the NAHB, Fannie Mae and Freddie Mac all see rates coming down in 2025.

We didn’t mention the National Association of REALTORS® because their predictions for the year ahead will be discussed at an event in mid-December. But it has mentioned that the Fed has room to cut the target for the federal funds rate 6 to 8 times. That was back in July, before the cut in September.

If you’re thinking about the best time to make a move when buying or refinancing a mortgage, when it comes to rates, it’s important to note that because bond traders are always trying to figure out what a fair yield will be 2 months from now. That’s because mortgage rates are directly tied to the yields on mortgage-backed securities (MBS).

While mortgage rates do tend to follow the same direction as the federal funds rate, mortgages are packaged into MBS for investors in the bond market a couple of months after your loan closes. Because of this, setting mortgage rates is an exercise in projection. We’ll get into some of the factors that traders look at soon.

While we talk about projections, why don’t we take a minute and look at the Federal Reserve’s (Fed) own for the federal funds rate? The federal funds rate is the rate at which federally-backed banks borrow from each other overnight to fund their operations. If the borrowing costs for banks go down, rates for borrowers also come down. The reverse happens if they rise.

Each quarter, Fed officials release new projections for a variety of the key economic indicators they look at in addition to a prediction for where the federal funds rate might be headed. The current median projection among the central bank’s top minds is that the federal funds rate will average 3.4% in 2025 and 2.9% in 2026, down 1% in the next year and 1.5% in the long run.

While the Federal Open Market Committee (FOMC) did lower the target range moving forward, their projections and recent comments from officials have led traders to rethink some of their timelines regarding the pace of