Mortgage rates were on a downward course—until they weren’t. After falling in September to a 2024 low of 6.08%, the average rate on the benchmark 30-year mortgage made an about-face, rising to the upper-6% range, landing at 6.78% for the week ending November 14, according to Freddie Mac data. Still, despite the surge, mortgage rates are 1% lower than they were at the same time last year. This likely accounts for the sizable increase in refinance activity compared to a year ago.
Additionally, although the Fed cut its benchmark interest rate by 25 basis points in November and Fed watchers expect another 25-basis point cut following the Fed’s final 2024 meeting in December (one basis point is one one-hundredth of a percentage point), mortgage rates are unlikely to decrease enough in 2024 to make homeownership affordable for many would-be buyers. Here’s what to know.
Fed Cuts Policy Rate Again: What This Means for Mortgage Rates and Home Affordability
In a widely expected move, the Federal Open Market Committee (FOMC) voted unanimously to cut its key interest rate by 25 basis points at its November two-day meeting. This decision follows the more sizable 50-basis point cut the Fed made at its September two-day policy meeting, which ended two and a half years of hikes and pauses.
The federal funds rate is the overnight borrowing rate for commercial banks and credit unions and indirectly influences mortgage rates. One basis point equals one one-hundredth of a percentage point. After holding rates between 5.25% and 5.5% for nearly 14 months—the highest level in 23 years—this latest cut lowers the Fed’s benchmark interest rate range to 4.50% to 4.75%.
As the Fed began raising rates in March 2022 in an effort to bring runaway inflation down to a 2% target, the housing market felt the squeeze. Mortgage rates took off, surging last October to their highest levels in decades, while home prices hit historic peaks amid high demand and scant inventory, shutting the door on many would-be buyers.
Will Mortgage Rates Drop Soon?
Despite this latest cut, housing experts say don’t expect mortgage rates to drop significantly in the near future. Indeed, mortgage rates steadily marched upward following the September 50-basis point cut, with the 30-year-fixed mortgage rate now hovering in the upper 6% range.
“Home buyers hoping for another dip in mortgage rates by the end of the year will likely be disappointed, but the good news is we still expect the long-run trend in rates to be downward as the fight against pandemic-induced inflation comes to an end,” said Ralph McLaughlin, senior economist at Realtor.com, in a press statement.
Samir Dedhia, CEO of One Real Mortgage, is also taking the long view.
“Although one rate cut may have a limited effect, consecutive cuts could improve affordability and drive more market activity, particularly if the Federal Reserve indicates a commitment to maintaining lower rates over a longer period," Dedhia said in an emailed statement.
Should Buyers Wait for Mortgage Rates To Fall?
Some experts caution that waiting for mortgage rates to drop further can be a risky strategy.
“For aspiring homebuyers, the right time to buy really depends on your individual goals and financial situation,” says Fred Bolstad, head of retail home lending at U.S. Bank. “If you are in the financial position to afford the payments on a home you find and love, there is no need to wait.”
What’s Next?
The next two-day FOMC meeting is set for December 17 and 18, when most experts expect the Fed to cut rates by another 25 basis points. The committee will also release its latest quarterly summary of economic projections, which project economic and employment data as well as policy rates in the near term and over the longer run.
Meanwhile, housing market analysts are closely monitoring the incoming administration’s potential economic policies. Based on the timing of their implementation and effects on inflation and employment, these could prompt the FOMC to reconsider its rate strategies.
Mortgage Rate Predictions for 2024 and 2025
Here’s how some experts predict market conditions will affect the average 30-year, fixed-rate mortgage in Q4 2024 and beyond:
LoanDepot: Mortgage rates could fall below 6% in Q4
“By the end of the year, [the Fed] may cut rates by 75-100 basis [points], which could bring mortgage rates to the high-5% to low-6% range,” says Jeff DerGurahian, chief investment officer and head economist at loanDepot.
BrightMLS: 30-year fixed rate to stay over 6% into 2025
“Prospective home buyers and sellers should still expect mortgage rates to fall through the end of the year and into next year, bringing welcome relief from rates that were over 7% earlier this year,” says Lisa Sturtevant, chief economist at Bright MLS. “But it is likely to see rates to be volatile over the coming weeks, ending the year in the low- to mid-6s.
Looking ahead to 2025, mortgage rates will likely continue to come down, assuming no major inflationary pressures, though it is possible to see the average rate on a 30-year fixed rate mortgage remain above 6% through most of 2025.”
Fannie Mae: Rates will average 6.0% in Q4 and continue descending
Fannie Mae revised its mortgage rate forecast downward for 2024, now forecasting the 30-year fixed mortgage rate to average 6.0% in the final quarter, followed by an average of 5.9% in the first quarter of 2025 and 5.7% in the second quarter.
Freddie Mac: Rates will stay above 6% in 2024 and ease gradually
According to its October Economic, Housing and Mortgage Market Outlook, Freddie Mac expects mortgage rates to ease very gradually over time, noting potential for rate volatility if economic news surprises the market. The mortgage giant predicted in its September forecast that the average 30-year mortgage rate will stay above 6% through the end of the year.
“Although uncertainty will remain, it does appear mortgage rates are cresting, and we do not expect them to reach the highs that we saw earlier this year,” said Sam Khater, chief economist at Freddie Mac, in a press statement.
Mortgage Bankers Association (MBA): Rates will average 6.3% in Q4
The MBA is projecting the 30-year fixed-rate mortgage to average 6.3% in the fourth quarter of 2024, according to the real estate finance association’s October Mortgage Finance Forecast. MBA economists anticipate rates to continue trending downward next year, averaging 6.2% and 6%, respectively, in the first and second quarters of 2025.
Palisades Group: Rates will stay above 6% through 2024
“While the Federal Reserve cut interest rates by 50 basis points [in September] and the market anticipates three additional cuts by year-end, we expect mortgage rates to remain above 6% through 2024,” says Nirvan Ghosh, portfolio manager at Palisades.
Bluebird Lending: Rates will decline minimally
“We saw a slight decrease in rates leading up to the Fed rate cut,” says Jess Schulman, president and COO at Bluebird Lending. “It is possible to see further reductions, but not enough to be meaningful in the short term. If borrowers see an opportunity to purchase, they should seize it and consider a refinance in the long-term.”
RE/MAX: Declining rates could set the stage for a more balanced start to 2025
“While we can’t predict rates with complete accuracy, it’s clear that they’re already trending lower than the highs we saw earlier this year,” says Amy Lessinger, president at RE/MAX LLC. “Experts are saying that rates will likely trend downward through 2024 and potentially into 2025 depending on economic conditions and further Fed actions. That said, we don’t anticipate rates dropping back to the historic lows we saw in 2020 and 2021, but the downward trend is helping to stabilize the market.”
New Homes Mate: Mortgage rate movement will depend on Fed, economy
“The Fed’s upcoming meetings and potential rate cuts will be crucial—even a 25 basis point cut could spark significant mortgage rate movement,” said Dan Hnatkovskyy, economist, housing market expert and CEO of NewHomesMate. “If we see further disinflation and rising unemployment, it could accelerate rate cuts and lower mortgage rates. However, resilient economic data could keep rates elevated.”
Current Mortgage Rate Trends
Though rates fell in August and September, they shot back up in October and into November. However, they remain below spring 2024’s highs—for now.
Here’s how rates have trended over the past five years for 15- and 30-year mortgages.
Refinance Now or Wait? What Experts Say About 2024 vs. 2025
To evaluate whether or not a refinance would be realistic, you want to evaluate your reasoning. If the goal is debt consolidation, it could make sense, but if you're trying to reduce the payment, it could be more challenging to achieve in the current higher-rate environment. The only way to know for sure is to speak with a mortgage lender to explore your options.
— Jenn Bourque, loan officer at Empire Home Loans and Forbes Advisor advisory board member
Whether 2024 or 2025 will be a better time to refinance depends on several factors, including the number of times the Fed cuts interest rates this year and by how much. The mortgage rate you got when you financed your home is another major factor.
Refinance rates tend to be higher than purchase rates, but the two typically move in tandem, suggesting refinance activity could gain greater traction if rates continue their downward trend.
Should You Refinance If You Already Have a Good Rate?
Over 40% of U.S. mortgages were originated in 2020 and 2021 when interest rates were at record lows. There were also some 14 million mortgage refinances during the same time. If you were lucky enough to secure a mortgage during that time, the remainder of 2024 and into the early months of 2025 may not be the ideal time to refinance.
“Right now, roughly two-thirds of Americans with a mortgage carry an interest rate below 4%,” DerGurahian tells Forbes Advisor. “Even with one or two possible rate cuts from the Fed in the second half of this year, rates will not drop below that point, making a refinance a tough sell.”
Should You Refinance If You Have a High Rate?
However, DerGurahian notes that refinancing in 2024 could make sense for some.
“If you're holding a mortgage rate around or above 7%, you could see significant savings by refinancing this year,” he says. “However, if your rate is 6.5% or lower, it might make sense to wait until 2025, as we're expecting rates to drop to the mid-5% range by midyear.”
Refinance activity in October decreased week-over-week as rates climbed, though activity was still well above a year ago. Further Fed rate cuts in 2024 could help to indirectly put some downward pressure on mortgage rates before the year is out, prompting refinance volume to pick up again.
Here are recent trends in refinance activity, according to the MBA’s Weekly Mortgage Applications Survey.
“After a brief burst of activity in September when rates were almost 60 basis points lower, overall applications have declined 27%, driven by a pullback in refinances,” said Joel Kan, vice president and deputy chief economist at MBA, in an emailed statement. “Government refinances accounted for a large part of the decrease.”
How To Shop for the Best Mortgage Rate
Rather than waiting it out for a rate that they like better, hopeful homebuyers should assess their personal financial situation—if the house is right for them, and the upfront and monthly payments are affordable, it could be the right chance to make a move.
- Matt Vernon, head of retail lending, Bank of America
Getting an optimal rate on a home loan can save you a significant amount of money over time. Here are some tips that can help you get the best rate possible for your situation:
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Keep your eye on rates. Mortgage rates are constantly changing. Keeping a close watch will make it easier to find and lock in a better rate.
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Check your credit. When you apply for a mortgage, the lender will review your credit to determine your creditworthiness as well as your interest rate. In general, the higher your credit score, the better your rate will be. To get an idea of where you stand, check your credit before you apply and dispute any errors with the appropriate credit bureau to potentially boost your score.
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Shop around and compare lenders. Consider options from as many mortgage lenders as possible to find the best deal for you. Prospective buyers have saved more than $1,500 over a loan’s term by getting two quotes from lenders and saved roughly $3,000 when they sought five quotes, according to Freddie Mac.
Article Courtesy of Forbes: Written by: Robin Rothstein, Edited by: Caroline Basile
