Roughly 71% of aspiring homeowners say they’re waiting for rate cuts to buy a home, according to BMO Harris. For many of these prospective homebuyers, the time may have finally come when they can apply for a mortgage and get an interest rate they’re comfortable with.
In August 2024, the famously-no-nonsense Federal Reserve Chair Jerome Powell told a group of bankers, “The upside risks to inflation have diminished” and, “The time has come for policy to adjust,” heavily implying that rate cuts would finally arrive after the Sept. 17, 2024 Federal Open Market Committee (FOMC) meeting.
Learn more: What the federal funds rate is and how it works.
This could be a big win for buyers who missed out on the COVID-era buying spree, since falling fed rates typically herald cheaper mortgages. When the Federal Reserve makes it less expensive for banks to operate, they tend to lower mortgage rates in kind.
But how exactly will the expected 2024 rate cuts impact mortgage rates through the end of the year? How about through 2025? Is it worth waiting until 2025 to buy a home or refinance?
Let’s explore, starting with a look at where mortgage rates have been.
Learn more: The big winners of the pandemic—2% mortgage rate holders.
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Mortgage interest rates in 2024
After nosediving from ~7.8% to 6.6% in Q4 2023, 30-year mortgage rates spent most of 2024 orbiting around 7%. But by late July, they finally began cooling off again—and have been trending downward ever since.
In May, Fannie Mae’s Home Price Expectations Survey (HPES) originally predicted that rates would fall to 6.6% by year’s end. However, that was before the Fed hinted at cutting rates in September, which analysts tend to agree would pull rates down even further.
But by how much?
In an August poll, Reuters found that 89 out of 101 economists predicted at least two 0.25% rate cuts between September and December of 2024. While that may not translate to an instant 0.5% drop in mortgage rates, Fed rates and mortgage rates do tend to track each other pretty closely—meaning the former is certainly pouring ice on the latter.
“This rate cut, if it occurs, could lead to a slight easing of mortgage rates in 2024, offering a glimmer of hope for prospective buyers,” writes the Economic & Housing Research group in a report for Freddie Mac.
Put it all together, and it’s pretty safe to assume that mortgage rates will end 2024 somewhere in the range of 6% – 6.5%.
Historical mortgage rates chart
Here’s a look at how average rates have tracked for 30-year conforming mortgages dating back to the 1970s, as presented by the Federal Reserve Bank of St. Louis (FRED):
Mortgage rate predictions for 2025
To preface all of this, there’s a reason even well-funded institutions like Fannie Mae and The Mortgage Bankers Association shy away from making mortgage rate predictions too far into the future. There are so many seen and unseen factors impacting mortgage rates at a given moment in time that it’s virtually impossible to quantify them all—let alone predict where they’ll be in 18 months.
The most obvious example of this is COVID-19. Back in January 2020—when rates were already ludicrously low at ~3.5%—nobody could’ve predicted that a global pandemic would result in them getting slashed even further until they reached their historic low of 2.65% in January of 2021.
But even as the masks came down and the dust began to settle, projecting mortgage rates more than a few weeks out remained as challenging as ever. Case in point, Fannie Mae predicted in August 2022 that the average mortgage rate would fall from 5.2% to 4.4% by the end of 2023.
But as we know, they did the opposite—and then some.
Fannie Mae
This isn’t to say that all mortgage rate predictions should be ignored, but rather, that they should be taken with a grain of salt. What thousands of talented economists, analysts and bankers have given us is not a promise—but an extremely well-educated guess—of where rates will go in 2025.
That’s an important distinction to make when you’re considering whether to buy now or wait until next year, because assuming that rates will follow their predicted path is a risk all by itself.
But we’ll discuss buying vs. waiting in a later section.
Learn more: Should you buy a home or rent?
For now, what is everyone’s best educated guess for 2025?
The general consensus is that rates will continue to creep downwards in 2025 until settling in the high-5% range by December.
- The Mortgage Bankers Association didn’t include mortgage rate predictions in its August 2024 Economic Forecast, but its latest forecast in May 2024 showed rates falling from 6.4% in January to 5.9% in December.
- Fannie Mae’s August 2024 forecast (its latest at the time of writing) predicts that 2025 rates will start at 6.2% and trickle downwards by 0.1% each quarter, landing somewhere near 5.9%.
- Freddie Mac hasn’t officially predicted where rates would start or end in 2025, but it does seem to agree with its sister agency. “The anticipation of an upcoming rate cut is already influencing the market, leading to downward pressure on mortgage rates,” it wrote in an official August 2024 outlook report. “As a result, we forecast mortgage rates to gradually decline in the coming quarters.”
So what data are these agencies looking at to drive their predictions?
What factors might drive mortgage rates down in 2025?
According to Freddie Mac, there are numerous economic trends that all spell falling mortgage rates in 2025. Here are three of the big ones:
- Fed rate cuts. Since the Federal Reserve has neared its goal of 2% inflation (it was 2.6% in June 2024), it may continue lowering interest rates to encourage borrowing and prevent another recession.
- Housing supply and demand. While home inventory still remains low (1.32 million units versus the pre-pandemic average of 1.8 million), that still represents a 23% year-over-year increase from 2023 levels. And as supply skyrocketed, demand fell 5.4%.
- Unemployment. Pulling from Bureau of Labor Statistics (BLS) data, Freddie Mac pointed out how unemployment sits at 4.3%—its highest since November 2021. Historically, higher unemployment leads to lower housing demand, which in turn forces lenders to consider lowering rates.
Learn more: It’s getting easier to find a starter home but harder to buy one.
While all three factors are major contributors to rising or falling mortgage rates, the federal interest rate may have the most direct—and powerful—influence on where rates will go next.
That’s why bankers, lenders, analysts, economists and well-educated home-buyers all tend to lean in and listen carefully when Jerome Powell speaks. Any indication whether the Fed will raise or lower interest rates at the next Federal Open Market Committee (FOMC) meeting is powerful intel about the short-term future of mortgage rates.
So, what is Powell saying these days?
Is the Fed likely to cut or hike rates, or hold steady?
In August 2024, Fed Chair Jerome Powell told a group of bankers, “The upside risks to inflation have diminished” and, “The time has come for policy to adjust.”
NPR reports that his remarks were met with raucous cheers.
That’s a pretty clear indicator that the September 17-18 FOMC meeting can be expected to result in lower interest rates by 0.25%. And as mentioned above, 89 out of 101 economists surveyed expect the Fed to lower rates by another 0.25% or even 0.50% by year’s end.
But what about in 2025? Will the Fed keep cutting rates, hike them back up or hold steady?
It depends who you ask, but the consensus seems to be that the Federal Reserve will either a) keep cutting rates to prevent a recession or b) hold steady.
According to a 2024 Reuters survey, the median forecast among 30 economists was that the Fed would continue cutting rates once per quarter in 2025 until the federal funds rate is in the 3.75% – 4.00% range. This is a pretty steep drop from where it currently sits as of early September 2024 (5.25% – 5.50%) and could lead to even lower mortgage rates than the ~5.9% predicted above.
Now that we’ve established where mortgage rates are predicted to be in 2025 (and why) let’s zoom in from the macro to the micro.
How does this affect you?
Should you wait until 2025 to buy a house?
Even though mortgage rate projections should always be taken with a grain of salt, there’s a healthy amount of evidence to suggest that rates could fall by 0.5% or more by the end of 2025.
For millions of aspiring U.S. homeowners, these falling rates have raised a simple, binary question: should you wait until 2025 to buy a house? Consider that a 0.5% lower rate could reduce your monthly payment on a $350,000 mortgage by something like $114, based on an example scenario we ran comparing a loan with 6.5% rate vs. a 6% rate. That adds up to a $1,368 difference in interest paid per year, or $41,040 over the life of a 30-year loan.
To help you decide, let’s run through some of the good (and not so good) reasons one might decide to wait until 2025 to buy a home.
Good reasons to wait:
- You need more time to save. If you’re not financially ready to buy a home just yet, it’s better to wait than to stretch your finances thin. If you force it too early, you run the risk of becoming “house poor.”
- You need to improve your credit score. Keep in mind that your credit score will generally have a far greater impact on your personal mortgage rate than the rising/falling Fed rate.
- You’re not seeing homes that interest you. If the properties within your budget don’t excite you, there’s little reason to rush the process and settle.
Learn more: Shrinkflation is coming for your home.
Bad reasons to wait:
- “Mortgage rates are falling.” If you’re otherwise 100% ready to buy a home, a predicted decline in mortgage rates isn’t a great reason to pull the plug since a) it may not happen and b) waiting to buy means paying rent longer. Also, once you’re in a home you love, you can refinance your loan later as we’ll address below.
- “Inventory will be better.” On the contrary, with around 71% of aspiring homeowners waiting for interest rates to drop to buy a home, it’s entirely possible we could see a spike in demand that gobbles up the rising (but still limited) supply once rates do head downard.
- “Houses will be cheaper.” In a similar vein, falling rates may lead to a rise in demand, which in turn could empower sellers to raise their asking prices.
In essence, the right time to buy a home is when you’re financially and emotionally ready. If you and your partner have all of your ducks in a row, (possibly) falling rates alone are not a good reason to wait.
Plus, if rates end up falling precipitously, you can always refinance.
Should you refinance your mortgage in 2024 or 2025?
Contrary to buying, the “when should I refinance?” conversation is a little more straightforward.
As a general rule of thumb, it’s best to consider refinancing when you can secure a rate that’s at least 1% lower than your current rate. That way, the cash savings will generally make up for the time, effort and closing costs of refinancing.
Let’s say you purchased a home with a rate of 7.835% on your loan last year when your FICO score was 690. In the 11 months since, your score has risen to 730 and mortgage rates have fallen to 6.5% for well-qualified borrowers. Now might be the time to call your lender and ask about your refinancing options, or even shop around with other lenders.
If you’re not quite at that 1% threshold, it might be worth waiting to see what rates 2025 will bring. In the meantime, you can set yourself up for success by researching lenders and improving your credit score.
Current mortgage rate trends
Here’s how the average interest rates have trended in recent months for a variety of home loan types, according to mortgage data and technology company Optimal Blue:
Note that due to the timing of the data reporting, the most current rate available for today is the one shown on the chart for the previous business day’s date.
Frequently asked questions
Will mortgage rates go down to 3% again?
No, not unless there’s an event such as another global pandemic or economic crisis forcing the Fed to lower rates to 0.00% – 0.25% again. In January 2024, the National Association of REALTOR (NAR)’s Chief Economist Dr. Lawrence Yun famously stated that he doesn’t expect rates to fall below 3% again in his lifetime.
What might mortgage rates look like over the next five years?
Due to countless seen and unseen factors, mortgage rate predictions going out farther than 18 months (and from reliable sources) are generally pretty rare.
Zooming out to the housing market as a whole, in January 2024 a group of economists with Bank of America told CNN that they don’t expect the housing market to get “unstuck” until 2026 or later. This is largely due to the “lock-in effect,” where many homeowners are unmotivated to sell and lose their 3% interest rate—thus limiting overall supply.
When should I lock in my mortgage rate?
Mortgage rate locks are generally used when rates are trending higher. If you lock in a rate too early and rates begin to fall, you may have to withdraw your current mortgage application and start over. In short: ask your lender.
What’s the best way to shop around for a new mortgage rate?
A great way to shop for mortgages is to ask for lender recommendations—from friends, family, your REALTOR, and so on— then get prequalified and compare rates. Consider also that small, specialized lenders tend to work faster than general lenders at big banks. Some consumers may also want to ask lenders whether they sell their mortgages or keep them for the life of the loan. To learn more, check out our guide to shopping around and finding the right mortgage.