After more than two years of steady declines, rates for 30-year fixed-rate mortgage loans reached a record low of 2.7% at the end of 2020, according to data from Freddie Mac. By the week ending October 26, 2023, rates had climbed to 7.79%, the highest rate since September 2000. After dropping off again after that, they’ve mostly remained within a few tenths of a percent of 7%.
It remains to be seen whether this trend will continue or whether economic forces will drive rates down again in 2024.
What Is the Interest Rate Forecast for 2024?
The Federal Reserve has raised the federal funds rate 11 times between March 17, 2022 and July 26, 2023. Several factors have influenced the increases, but the Fed’s mission to tame inflation has been a major one — The central bank aims to push the inflation rate down 2%. As of May, the Consumer Price Index, the primary measure of inflation, is 3.3%. While significantly lower than the peak of 9.1% in June 2022, inflation has not come close enough to the 2% goal for the Fed to begin lowering the federal funds rate.
Following its most recent meeting, held on June 12, the Federal Open Market Committee released a statement acknowledging that employment and inflation are in better balance compared to a year ago, but the economic outlook remains uncertain.
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%,” the statement said. However, FOMC members’ median opinion is that it will vote on one 25 basis point (one-quarter of 1%) cut this year. That would bring the target rate range down to 5.00% to 5.25%.
How High Will Mortgage Rates Go in 2024?
It seems unlikely that the Fed will increase the federal funds rate this year. However, that rate is only one factor that impacts mortgage rates. The housing market and the factors that affect it play major roles as well.
At the beginning of 2024, the average mortage rate was 6.62%, according to Freddie Mac. It has trended upward since then and sits at 6.95% as of June 13.
Fannie Mae’s most recent housing forecast, released in May, predicts that rates will top out at 7.1% for the second and third quarters of 2024.
The Mortgage Bankers Association’s most recent forecast, issued in May 16, is more optimistic. The organization’s analysts predict that the highest average rate of the year — 6.9% — will occur in the second quarter, which has already ended.
Freddie Mac didn’t specify a particular rate in its May Economic, Housing and Mortgage Market Outlook report, but it did say it expect to see elevated rates for longer than previously anticipated.
Here are some factors that will affect rates in 2024.
Inflation
Inflation hit 40-year highs in 2022. But it’s slowing, with the May CPI coming in at 3.3%. Shelter is the primary category driving up prices, according to the Bureau of Labor Statistics.
“While inflation doesn’t directly affect mortgage rates, it can indirectly cause mortgage rates to increase,” Amy Shunick, chief financial officer at Bennett, told Rocket Mortgage. “Inflation is the devaluation of the dollar, which means that the purchasing power of your dollar decreases significantly as inflation increases. As inflation increases, so does the price of everything, including mortgage rates.”
While the overall inflation rate is holding steady, increases in the costs of rent and homeownership have tempered growth in demand for homes — and by association, mortgage loans, as Freddie Mac noted in its June 13 Primary Mortgage Markets Survey.
Federal Funds Rate
The federal funds rate is the interest rate banks use to loan each other money. When the federal funds rate increases, banks pay more to borrow, and they pass along some of those costs to consumers by raising mortgage rates.
The Federal Reserve uses federal funds rate increases to tame inflation by discouraging consumers from spending and borrowing, which slows the economy and brings down prices. The rate increased seven times in 2022. That resulted in a total increase of 425 basis points, or 4.25%, between March 17, when the rate stood at 0.25% to 0.50%, and Dec. 15, when it stood at 4.25% to 4.50%.
The funds rate increased by another 25 basis points, to 4.50% to 4.75%, in February 2023. It rose again in March, May and July 2023. The rate currently stands at 5.25% to 5.50%, unchanged since last July.
While federal funds rate hikes result in higher mortgage rates in the short term, they set the stage for lower rates in the long term by reducing inflation. The Fed is watching for inflation to make better progress toward the 2% goal, and it’s weighing the effects on employment to ensure that employment rates stay strong. FOMC members’ median rate forecast calls for a 0.25% cut by the end of this year.
Will Mortgage Rates Go Down in 2024?
Mortgage rates could see a slight decline in the third and fourth quarters of this year. However, predictions shift from month to month as new economic data becomes available.
In 2023, for example, many experts’ mortgage rate predictions called for a meaningful drop beginning as soon the third quarter of that year if the Fed was successful in reducing inflation to a level closer to its 2% goal by midyear. That didn’t happen, nor did a recession, which might’ve prompted the Fed to reduce the federal funds rate — in that case, to rev up the economy by encouraging consumers to spend and borrow.
The Fed’s July 26, 2023 announcement of the 5.25% to 5.50% rate target came as no surprise to 106 economists polled by Reuters, all of whom had predicted the 25-basis-point hike.
What has surprised some is the economy’s resilience. Rather than Fed policy plunging the nation into recession, it appears to have brought it in for a “soft landing” — achieved continued economic growth despite the actions taken to reduce inflation.
Jessica Lautz, deputy chief economist and vice president of research for the National Association of Realtors, expressed uncertainty over where rates are headed. In an Aug. 17, 2023 NAR blog post, she wrote, “Something has to give for rates to come down, and that something is the next decision by the Fed.”
That’s as true in June 2024 as it was last August.
In its Mortgage Finance Forecast dated May 16, the Mortgage Bankers Association predicted that mortgage rates would fall to 6.7% in the third quarter and 6.5% by year’s end.
Fannie Mae’s May Housing Forecast predicted that rates will remain steady in the second half of the year, falling just 0.1% from Q3 to Q4.
Freddie Mac does not offer a specific prediction. “We expect mortgage rates to remain elevated through most of 2024,” its May U.S. Economic, Housing and Mortgage Market Outlook stated.
Freddie Mac expects continued high demand for homes, although it acknowledges that low inventory continues to present challenges.
Mortgage Rates for June 2024
The average 30-year fixed mortgage rate for the week ending June 13 is 6.95%, according to Freddie Mac. That’s down slightly from 6.99% for the week ended June 6.
The current rate for a 15-year fixed-rate loan is 6.17%, down from 6.29% the week ended June 6.
Mortgage Refinance Rates for June 2024
Zillow publishes representative rates based on averages from lenders that quote rates on its website. Actual rates depend on many factors, including the borrowers’ verified credit and financial information, locations and types of loan. According to its survey, the current national average for a 30-year fixed-rate refinance loan is 7.62%, up 0.55% from last week’s average of 7.07%.
Shorter terms have lower rates, and rates on fixed-rate refinance loans are lower than rates for adjustable-rate refinance loans.
Are Mortgage Rates Expected To Drop in 2024?
Experts predict negligible changes in mortgage rates through the end of 2024, but they do believe that any movement will be downward. The Mortgage Bankers Association believes they could fall to 6.5% by the end of the year.
What Is the Mortgage Rate Forecast for the Next 3 and 5 Years?
Economists and analysts rarely make mortgage rate predictions even three years out because many variables determine rates, and those variables are always changing. As a result, any forecast would be purely speculative.
The Mortgage Bankers Association does go out two years, to 2026. It predicts a 5.7% rate by the end of that year. However, its prediction changes monthly and will have changed over two dozen times by the end of 2026.
Is This a Good Time To Lock In a Mortgage Rate?
Mortgage rates haven’t been moving in a straight line. That makes for a tough decision considering that lock-in periods can last 90 days. On the one hand, locking in now protects you from rate increases. On the other, you could pay more than you need to in the event that mortgage rates go down before you close on your loan. But timing the market so that your purchase coincides with expected rate drops can be risky.
Remember that the interest rate isn’t the only thing that impacts the cost of buying a home. Lower rates mean you pay less interest, but they also drive up demand for homes, which increases home prices.
A sound strategy for many buyers, especially the more budget-conscious, is to lock in only after you’ve had an offer accepted on a home. That way, you make a purchase decision based on the big picture in terms of affordability and simply set it in stone by locking the rate.
Should You Refinance Your Mortgage?
Whether it makes sense to refinance now depends on your circumstances. Freddie Mac recommends considering refinancing if it will result in one of the following:
- Reducing your interest rate
- Shortening the term of your loan
- Locking in an adjustable-rate loan that’s about to adjust upward
Consider potential consequences of refinancing before you make the move. For example, refinancing into a loan with a lower rate can actually cost you money if you trade a loan you’ve been paying down for years for a new 30-year mortgage. A shorter-term loan generally has lower rates than a 30-year loan, but the higher principal payments could divert money from other financial priorities, such as paying down high-interest debt.
With any type of refinance, lender fees and closing costs chip away at any savings you stand to gain — even if the loan is advertised as having no fees or closing costs.
Lenders have two ways to offer no-fee/no-closing-cost loans. “One way is by charging you a higher interest rate to cover the cost of making the loan. The other way is by adding the closing costs to your loan amount,” according to the Consumer Financial Protection Bureau. “Both methods involve no cash to close the loan but result in a higher monthly payment.”
How Do Mortgage Rates Affect Home Prices?
Record home prices in the last couple of years were the result of several factors, including record-low mortgage rates, a limited supply of homes for sale, an increase in first-time buyers and migration from expensive cities to areas where homes were already in short supply, according to Freddie Mac. What these factors have in common is their effect on demand for homes.
Higher rates make it harder for consumers to buy, so demand drops — and as demand drops, so do home prices. Low rates like consumers saw in 2020 and 2021 make it easier for buyers to purchase, which increases demand and drives prices up.
As we move forward, prices continue to be influenced by both rates and inventory.
Final Thoughts
A volatile economy might tempt you to make decisions based on how long you expect a rate to last — or what you anticipate the next move to be. Resist the urge. Trying to time the market is rarely a good strategy, whether you’re investing in a home or in the stock market.
Instead, set a budget based on what you can afford when you’re ready to buy. Or, in the case of a refinance, run the numbers through a refinance calculator to get an accurate picture of costs vs. savings, and base your decision on that. In either case, you’ll eliminate the uncertainty around the already-stressful process of buying or refinancing a home.
FAQ
You have questions about the mortgage interest rate forecast. We have answers.
- Where will mortgage rates be in 2025?
- It’s impossible to predict the future. But some experts expect lower mortgage rates in 2025.
- Are mortgage rates expected to go down in the next five years?
- Some experts forecast that mortgage rates will fall in the next two years. Even those predictions are speculative and will change frequently, so it’s impossible to predict what could happen with rates in the next five years.
- Are mortgage rates going to go down?
- Probably. Experts expect rates to begin a gradual decrease by the end of the year.
- How can I lower the interest rate on my mortgage?
- In most cases, the only way to reduce your current rate is to refinance your mortgage loan. Be sure to account for closing costs when you calculate your savings, and remember that extending your loan term beyond your current payoff date could eliminate any savings you stand to gain from reducing your rate.
- What makes mortgage interest rates go down?
- Several economic factors affect rates. Federal interest rates and housing supply and demand are major ones.
- Can I ask my bank to lower my mortgage interest rate?
- Reducing the rate requires restructuring your current loan. That might be an option if you’re struggling to make your payments and qualify for your lender’s foreclosure prevention programs.
Sarah Sharkey contributed to the reporting for this article.
Information is accurate as of June 20, 2024.
The article above was refined via automated technology and then fine-tuned and verified for accuracy by a member of our editorial team.
