Many people who are looking to buy a home in the US are wondering if they will ever see mortgage rates as low as 3% again. After all, just a year ago, the average 30-year fixed-rate mortgage was around 3.1%, according to Freddie Mac. That was a historic low that made homeownership more affordable for millions of Americans.
But since then, mortgage rates have been steadily rising. Mortgage reached 7.83% on October 11, 2023. That's the highest level since 2000, and it has a significant impact on the monthly payments and the total cost of borrowing for homebuyers.
Will Mortgage Rates Ever Be 3% Again?
So what are the chances that mortgage rates will drop back to 3% in the near future? Unfortunately, not very high, according to most experts.
The main reason why mortgage rates are so high right now is inflation. Inflation is the general increase in the prices of goods and services over time, and it reduces the purchasing power of money. When inflation is high, lenders demand higher interest rates to compensate for the loss of value of their money over time.
Inflation has been surging in the US since the start of the pandemic, due to several factors, such as supply chain disruptions, labor shortages, pent-up demand, and massive government stimulus. The Consumer Price Index (CPI), which measures the changes in the prices of a basket of consumer goods and services, rose by 6.2% in September 2023 from a year ago, the highest annual increase since 1990.
Fed's Role in Mortgage Rates
The Federal Reserve, which is the central bank of the US, has the dual mandate of maintaining price stability and maximum employment. To fight inflation, the Fed can raise its key interest rate, known as the federal funds rate, which influences other short-term interest rates in the economy. By making borrowing more expensive, the Fed can slow down economic activity and reduce inflationary pressures.
The Fed has already signaled that it will start raising its interest rate in 2024, sooner than previously expected. The Fed also announced that it will begin tapering its bond-buying program, known as quantitative easing (QE), which has been injecting trillions of dollars into the financial system since March 2020 to support the economy during the pandemic. By reducing its bond purchases, the Fed will reduce the supply of money in the market and put upward pressure on long-term interest rates, such as mortgage rates.
Therefore, unless inflation slows down significantly in the coming months, it is unlikely that mortgage rates will fall back to 3% anytime soon. In fact, some experts predict that mortgage rates could reach 10% by 2025.
Expert Opinions
Lawrence Yun, chief economist at the National Association of Realtors (NAR), says that “returning to mortgage rates of 3% or 4% is not going to happen, in my view. He points out that historically rates have been higher than that, and that “the short-lived era of 3% interest rates for 30-year fixed mortgages is over.
Lisa Sturtevant, chief economist at Bright MLS, agrees that “there will be no return to the 3% rates we had during the pandemic“. She says that “while mortgage rates likely will come down some in the second half of the year, they will remain above 6% for most borrowers“.
Of course, no one can predict the future with certainty, and there are always factors that can affect mortgage rates in unexpected ways. For example, if there is a major geopolitical crisis or a new variant of COVID-19 that threatens global health and stability, investors may flock to safe-haven assets such as US Treasury bonds, which would lower their yields and consequently lower mortgage rates.
But barring any major shocks to the system, most analysts agree that mortgage rates are unlikely to return to 3% in the foreseeable future. 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. This is due to a combination of factors, including:
- Higher Inflation: Inflation is currently at a 40-year high in the US, and the Federal Reserve is raising interest rates to combat it. This puts upward pressure on all borrowing costs, including mortgage rates.
- Changed Economic Landscape: The global economy has changed significantly since the last time mortgage rates were at 3%, in 2020. There are now greater geopolitical tensions, supply chain disruptions, and a looming recession. These factors make it less likely that interest rates will fall back to such low levels.
- Shifting Investor Expectations: Investors have become accustomed to higher interest rates and may not be willing to lend money at such low rates as they were in the past. This could keep mortgage rates above 3% even if inflation and other factors were to moderate.
However, it is important to remember that the future is uncertain. If inflation falls significantly and the economy enters a deep recession, it is possible that mortgage rates could fall back to 3%. However, this scenario is considered unlikely by most economists.
FAQs
"It's doubtful we will see rates that low, barring some major, adverse economic event, such as a recession, which is not expected in the near term." Tai Christensen, president of Arrive Home, agrees that 3% mortgage rates aren't coming back. "Mortgage rates could eventually drop back down to 3%," Christensen says.
Will interest rates ever go down to 3% again? ›
It's possible that rates will one day go back down to 3%, though if current trends hold that's not likely to happen anytime soon.
How low will mortgage rates go in 2025? ›
Here's where three experts predict mortgage rates are heading: 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."
How low will mortgage rates go in 2024? ›
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.
What is the interest rate forecast for the next 5 years? ›
Trading Economics offers a more optimistic outlook, predicting a rise to 5% in 2023 before falling to 4.25% in 2024 and 3.25% in 2025. This forecast is supported by Morningstar's analysis, which projects rates between 3.75% and 4%.
Will mortgage rates go down in 2026? ›
Adding to the chorus of potential decline is Statista's forecast, which suggests a 1.6% drop in the 30-year fixed rate by 2026. Their prediction rests on the assumption that the 10-year treasury constant maturity rate will also decline, which has historically correlated with movements in mortgage rates.
Will mortgage rates ever be 4 again? ›
Will we ever see the 4% mortgage again? The 4% mortgage is unlikely to return any time soon, real estate economists say. Realtor.com expects rates to ease by year's end – to 6.5%. “People are just going to have to get used to, if not 7% rates, then 6% rates,” said Daryl Fairweather, chief economist of Redfin.
Will mortgage rates ever go below 5? ›
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. Here's where mortgage interest rates are headed for the rest of the year and how that will impact the housing market as a whole.
What is a good mortgage rate? ›
As of May 31, 2024, the average 30-year fixed mortgage rate is 7.11%, 20-year fixed mortgage rate is 6.94%, 15-year fixed mortgage rate is 6.29%, and 10-year fixed mortgage rate is 6.22%. Average rates for other loan types include 6.95% for an FHA 30-year fixed mortgage and 7.14% for a jumbo 30-year fixed mortgage.
Why are mortgage rates so high? ›
When inflation is running high, the Fed raises those short-term rates to slow the economy and reduce pressure on prices. But higher interest rates make it more expensive for banks to borrow, so they raise their rates on consumer loans, including mortgages, to compensate.
In summary, buying a house in California in 2024 may be a good time for some buyers, depending on their personal and financial situation. The housing market is expected to rebound from a sluggish year in 2023, with more supply and demand, higher prices and affordability, and lower mortgage rates and inflation.
How many times can you refinance your home? ›
Legally speaking, there's no limit to how many times you can refinance your mortgage, so you can refinance as often as it makes financial sense for you. Depending on your lender and the type of loan, though, you might encounter a waiting period — also called a seasoning requirement.
Will CD rates go up in 2024? ›
"CD rates will most likely drop and drop substantially in 2024," says Robert Johnson, professor of finance at Heider College of Business at Creighton University. "The biggest reason is the likelihood of Federal Reserve rate cuts later this year."
Will interest rates ever be 3 again? ›
If inflation falls significantly and the economy enters a deep recession, it is possible that mortgage rates could fall back to 3%. However, this scenario is considered unlikely by most economists.
What are mortgage rates expected to be in 2025? ›
One reason being that as the Federal Reserve begins to cut rates, the bond market is expected to become less volatile, leading to a slight decline in mortgage rates. The average 30-year fixed mortgage rate as of Friday is 6.91%. By the final quarter of 2025, Fannie Mae expects that to slide to 6.0%.
How long is interest rate future? ›
These futures can also be short-term or long-term. Short-term interest rate futures have an underlying instrument with a maturity of less than one year, while long-term interest rate futures have an underlying instrument with a maturity of over one year.
Is the Fed going to lower rates in 2024? ›
As recently as their last meeting on March 20, the officials had projected three rate reductions in 2024, likely starting in June. But given the persistence of elevated inflation, financial markets now expect just one rate cut this year, in November, according to futures prices tracked by CME FedWatch.
When was the last time interest rates were below 3? ›
The lowest interest rate for a mortgage in history came in 2020 and 2021. In response to the COVID-19 pandemic and subsequent lockdowns, the 30-year fixed rate dropped under 3% for the first time since 1971, when Freddie Mac first began surveying mortgage lenders.
Will interest rates go down in 2024 for car loans? ›
Auto loan rates for new and used vehicle purchases fell in the first quarter of 2024 to 6.73% and 11.91%, respectively, down slightly from the 15-year highs we saw at the end of 2023, according to Experian.
Will home equity rates go down in 2024? ›
Experts largely agree that home equity loan rates — and all kinds of mortgage rates, for that matter — will drop in 2024. They're just not sure how far. For the most part, that will depend on how far the Fed goes on its rate drops.
