Mortgage rates change all the time based on a variety of economic factors like the bond market, investor expectations, inflation, labor data, and what the Federal
Reserve decides on monetary policy. When inflation is up, the Fed tends to raise interest rates to cool down the economy and control rising prices. This makes borrowing
more expensive for banks, which leads them to raise rates on things like mortgages. Over the past few years, the Fed has bumped its short-term interest rate from nearly
zero to around 5.25%-5.5%, causing mortgage rates to skyrocket. At the beginning of August, rates did drop noticeably due to a concerning labor report that raised recession
worries. Still, even though the average 30-year fixed mortgage rate hit a low of 6.5%.
What could happen by the end of the year and moving forward?
It looks like the general belief is that mortgage rates will continue to slowly drop in 2025, eventually settling in the high-5% range by December.
The Mortgage Bankers Association didn’t release any specific rate predictions in its August 2024 Economic Forecast, but back in May 2024, they projected rates would fall from
6.4% in January to around 5.9% by December. Similarly, Fannie Mae’s August 2024 forecast predicts that rates will start at 6.2% in 2025 and gradually decrease by about 0.1%
each quarter, getting close to 5.9% by the end of the year. Freddie Mac hasn’t put out exact predictions for where rates will start or end in 2025, but they seem to be on the same page.
In their August 2024 report, they mentioned that the expectation of a rate cut is already putting downward pressure on mortgage rates, and they forecast a gradual decline in the coming
quarters.
"Check out the chart to see how rates have shifted over the last four years."