Mortgage Rate Outlook: What’s Next for Home Buyers?
Rates Have Dropped, But Will They Keep Falling?
Mortgage rates have taken a significant dip since autumn 2023, with the 30-year fixed rate decreasing by over 30 basis points. However, the decline has slowed down, and rates have mostly stayed flat or increased since September. So, what’s next for home buyers?
Understanding the Connection Between Mortgage Rates and the Federal Reserve
To gauge when mortgage rates will drop more dramatically, it’s essential to understand why they increased in the first place. The rising mortgage rates were largely tied to inflation, which prompted the Federal Reserve to push up its interest rates to curb spending. The central bank increased its benchmark federal funds rate 11 times throughout 2022 and 2023, raising it from nearly 0% to the range of 5.25% to 5.50%. The Fed finally cut the federal funds rate in September 2024, followed by two more rate cuts in November and December.
Expert Predictions: What to Expect in 2025 and Beyond
According to Fannie Mae, 30-year mortgage rates will be at 6.60% by the end of 2024 and 6.20% by Q4 2025. The Mortgage Bankers Association predicts the 30-year rate will be at 6.60% by the end of 2024, then at 6.40% by Q4 2025. While rates might decrease in 2025, the changes might not be as significant as once thought.
Should You Wait for Lower Rates to Buy a House?
It depends. Mortgage rates are lower than this time last year, but they will probably decrease in 2025, albeit gradually. To determine if it’s worth waiting, run the numbers and consider the impact of a rate drop on your payment. Additionally, think about housing market conditions, as lower mortgage rates could lead to more competition for properties and drive up prices.
Tips for Getting the Best Mortgage Rate
To ensure you’re getting the best mortgage rate possible, compare mortgage lenders, shop around, and work on improving your credit score. You can also consider an interest rate buydown, which can temporarily or permanently lower your interest rate in exchange for an up-front fee.
The Bottom Line
Mortgage rates will likely go down in 2025, but the decline may be gradual. While expert sources predict rates will decrease, current forecasts don’t see interest rates falling below 6% in the next few years. It’s essential to weigh the pros and cons of waiting for lower rates versus buying a home when the time and numbers work for you.
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