How far will mortgage rates fall when the Fed cuts rates? Here's what experts say (2024)

FAQs

Will mortgage rates go down when the Fed cuts rates? ›

Markets currently anticipate one cut this year, so if the Fed keeps three cuts on the table, we should see a small improvement in mortgage rates. However, if the Fed were to match market expectations, then mortgage rates should remain relatively unchanged."

While McBride had initially expected mortgage rates to fall to 5.75 percent by late 2024, the economic reality means they're likely to hover in the range of 6.25 percent to 6.4 percent by the end of the year.

But until the Fed sees evidence of slowing economic growth, interest rates will stay higher for longer. The 30-year fixed mortgage rate is expected to fall to the mid-6% range through the end of 2024, potentially dipping into high-5% territory by the end of 2025.

Therefore, homebuyers who are waiting for a better deal may be disappointed and miss out on other opportunities in the housing market. In summary, it is unlikely that mortgage rates in the US will ever reach 3% again, at least not in the foreseeable future.

The mortgage rate forecast for 2024 is that rates are expected to go down, although it may take longer than had previously been hoped. In May 2024 we have seen rates on fixed-rate mortgages increase for several months following many months of rates falling. However, the picture could soon improve for homeowners.

Buying power boost: If you budgeted about $1,846 a month for a mortgage payment, and the interest rate dropped 1 percentage point — from 7% to 6% — you could spend about $30,480 more on a home without increasing your monthly payment.

Mortgage rates are expected to come down in 2024, and inventory and home sales are likely to increase. Homebuyers and sellers can also expect prices to continue to rise, albeit at a slower clip than the past couple of years.

The majority of forecasts indicate that house prices in the US are expected to rise or remain stable in 2024. The predictions from various economists suggest that mortgage rates are expected to rise in 2024 before potentially cooling to lower than how the year began.

Around 6% or below by Q1 2025: "Rates hit 8% towards the end of last year, and right now we are seeing rates closer to 6.875%," says Haymore. "By the first quarter of 2025, mortgage rates could potentially fall below the 6% threshold, or maybe even lower."

If you're in California, there's a strong chance you might be — one of the fortunate holders of a 3% mortgage rate, that is. The ultra-low mortgage rates of 2020 and 2021 set off a homebuying frenzy across the state, particularly in the Bay Area — and many also took the opportunity to refinance.

Will interest rates ever go back to 4%? ›

If those projections remain and the Fed begins to lower its key rate, mortgage rates will presumably follow suit. Sunbury predicts the Fed will cut rates by between 100 to 125 basis points starting in May or June of 2024. “This would bring the policy rate to 4% to 4.25%,” Sunbury explains.

In the Fed's latest economic projections from March, the median forecast for 2024 assumed three rate cuts, even as the Fed's preferred inflation gauge retreated to 2.4 percent before excluding food and energy prices.

A mortgage with a fixed interest rate means it won't be affected when the base rate goes up. If the base rate goes down, you won't pay any less, however. A variable-rate mortgage. You are likely to be placed onto a SVR mortgage when your mortgage deal comes to an end.

While the Federal Reserve doesn't directly set mortgage rates, it influences them by making changes to the federal funds rate, the interest rate that banks charge each other for short-term loans. The Fed's decisions alter the price of credit, which has a domino effect on mortgage rates and the broader housing market.

The Fed typically cuts only when the economy appears to be weakening and needs help. Lower interest rates would reduce borrowing costs for homes, cars and other major purchases and probably fuel higher stock prices, all of which could help accelerate growth.

"By the first quarter of 2025, mortgage rates could potentially fall below the 6% threshold, or maybe even lower." Hold steady through 2024: Afifa Saburi, a capital markets analyst for Veterans United Home Loans, doesn't think rates are going to drop much this year.