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It may be hard to believe now, but it wasn’t that long ago that mortgage interest were near historic lows. On August 27, 2020, the average rate on a 30-year bond was 2.91%. A year later, it had fallen even further to just 2.86%. But as the pandemic and the economic factors that influenced it subsided, inflation rose dramatically and in June 2022 it was at a 40-year high. Interest rates quickly followed suit and by August 2023 the average mortgage rate had more than doubled to 7.31% – the highest level since 2000.
But the interest rate environment is changing again.
Inflation has cooled significantly so far in 2024, falling for the last four straight months. And while the Federal Reserve has federal funds rate frozen at a range of 5.25% to 5.50%, September cuts appear imminent. And when they finally do come, mortgage rates will start to fall again. While the average rate of 6.57% for a 30-year mortgage still seems high today, it may not stay that high for much longer. Mortgage rates could fall below 6% sooner than some borrowers expect. Here’s a look at when that change could happen.
See here how low the mortgage interest rate is that you can get now.
This is when mortgage rates can drop below 6%
Forecasts for how much the Federal Reserve will cut interest rates — and when — vary from economist to economist. What most seem to agree on, however, is that a cut is imminent before the Fed’s next meeting, which ends on September 18. The CME FedWatch tool estimates that with 100% certainty. While the Fed doesn’t directly dictate what lenders offer borrowers, it does influence them. So if it were to cut 25 basis points, mortgage rates could theoretically fall from 6.57% to 6.32%. But that’s assuming that current rates haven’t always “priced in” a September cut. If lenders have, those rates won’t fall much further in September.
But the Federal Reserve meets again on November 6-7. And if inflation numbers are still encouraging at that time, it’s possible they could cut the federal funds rate by another 25 basis points or even half a percentage pointIf we take the current rate of 6.57% as a starting point, mortgage rates will then be just above 6%.
However, it is the last Fed meeting of the year, scheduled for December 17-18, when mortgage rates are likely to fall below the 6% threshold. Even a simple 25 basis point cut would then result in rates below 6%. But if the Fed feels safe to be more aggressive, rates could even fall to the mid- to high-5% range.
Still, it’s important to remember that there’s no direct correlation between the Fed and mortgage lenders. Lenders can factor future rate cuts into their offers in advance, so it’s possible (if not likely) that mortgage rates could fall below 6% before December. But at today’s rough reading — and assuming no new economic data to stop the cuts — borrowers can generally expect to see rates in the 5% range sometime in the final weeks of 2024.
Start by exploring your current mortgage rate options online.
The heart of the matter
Predicting the future of interest rates, especially for specific loan products, can be an inexact science, depending on multiple unknowns. But if inflation continues to cool, pressure will increase on the Fed to lower rates. Still, no formal rate cuts are needed for lenders to offer lower rates on mortgages (they’ve already fallen by more than a full percentage point since late 2023 without a formal cut). So keep an eye on the interest rate environment. improve your credit and start house hunting now. The time to secure a mortgage rate below 6% may be sooner than you think.
