The question on many minds lately: Will mortgage interest rates go down? The answer is a cautious yes, but the real question is: By how much, and when? Understanding how interest rates will shift is crucial for both potential homebuyers and homeowners looking to refinance. Let’s dive into the details, backed by current data, to give you a clear outlook for 2024 and beyond.

What’s Happening with Mortgage Interest Rates?

Before we proceed, let’s clarify one thing—nobody can predict with 100% certainty whether mortgage interest rates will decrease. While many indicators suggest they will, it’s not guaranteed. However, market expectations give us a strong signal.

According to market data from the CME FedWatch Tool, there’s a 100% probability that the Federal Reserve will cut interest rates by September 18, 2024. In fact, there’s a 63.5% chance that the Fed will cut rates by 0.25%, and a 36.5% chance they’ll cut by 0.5%.

While a 0.25% decrease might not sound like much when mortgage rates are currently around 6.5%, it’s a sign of what’s to come. The Fed typically follows a gradual process when adjusting rates, as we saw when they raised rates from 0% to 5.5% over 11 hikes. Similarly, we can expect a gradual decrease over multiple years.

Federal Reserve’s Influence on Mortgage Rates

It’s important to note that the Federal Reserve doesn’t directly control mortgage rates. However, their monetary policy heavily influences them. The Fed’s decisions on interest rates, along with their bond-buying activities, affect the interest rates on government debt, particularly the 10-year Treasury bond yield. Mortgage rates are closely correlated with these yields.

Historically, mortgage rates are about 1-3% higher than the yield on the 10-year Treasury note. Right now, the gap is approximately 2.6%, meaning mortgage rates could fall to 5% or even 5.4% without any further actions from the Fed. But with the Fed projected to cut rates multiple times through 2024 and 2025, it’s likely we’ll see mortgage rates drop even further.

What to Expect in 2024 and 2025

So, how low can mortgage rates go? Based on current projections, mortgage interest rates could dip as low as the upper 4% range by late 2024. While it’s unlikely we’ll see 4.8% rates by December 2024, we can expect rates to hover between 5% and 6.25% in the first quarter of 2025.

By mid-2025, it would be surprising if mortgage rates are still above 6%. This aligns with the Federal Reserve’s forecast of multiple rate cuts during this period, suggesting that homeowners looking to refinance may soon find more favorable conditions.

Will Inflation Affect This Outlook?

One major wildcard in this forecast is inflation. If inflation re-accelerates, the Federal Reserve may be forced to pause or reverse their planned rate cuts. In that case, we wouldn’t see the decline in mortgage rates as expected. Inflationary pressures are something to keep an eye on, as they could throw a wrench in the Fed’s plans to ease monetary policy.

Home Prices and Mortgage Rates: What to Expect

Another common question is whether home prices will surge as mortgage rates decrease. While lower mortgage rates can add buying pressure and drive prices up, it’s not a guaranteed outcome. In fact, if home prices are already on a downward trend, lower rates might simply slow the decline rather than reverse it.

Will We Ever See 3% Mortgage Rates Again?

Given the Federal Reserve’s current stance, it’s highly unlikely that we’ll return to the 3% mortgage rates seen during the height of the pandemic—at least not in the near future. Barring a catastrophic economic event, we’re looking at higher baseline mortgage rates for the foreseeable future.

Conclusion: What Should Homebuyers and Homeowners Do?

For homebuyers considering purchasing in 2024 or early 2025, don’t expect rates to shoot up suddenly. In fact, we’re likely to see lower rates than we have now. If you’re looking to refinance, patience is key, as better opportunities are on the horizon. Just keep an eye on inflation, and be prepared to act when the time is right.

Stay tuned for more updates on mortgage trends, and subscribe to stay informed as new developments unfold. Thank you for your support, and I wish you a great day ahead!