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Today’s high interest rates have made monthly mortgage payments too expensive for many American homebuyers, forcing them to postpone their purchases. While mortgage interest fell in September 2024, providing some temporary relief for homebuyers, but a combination of factors pushed them back up shortly afterwards – re-pricing some buyers who had been waiting on the sidelines for a friendlier interest rate environment.
Still, with the Federal Reserve suggesting possible interest rate cuts next year, buyers want clear guidance for their decisions. That has many potential home buyers wondering whether mortgage interest rates will fall soon to 5%. However, the answer to that question is not so cut and dry. While some financial experts predict that such a rate drop could happen soon, others see a longer path into the future.
And while lower rates would help buyers save money, leading industry professionals say other factors include house prices and available inventory also influence affordability. Here’s what these experts have to say about when mortgage rates could hit 5% and what that means for your home buying strategy.
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When could mortgage rates reach 5% again? Experts weigh in
Getting back to 5% mortgage rates will take time, experts say.
“I agree with the latest MBA forecast, which expects rates to reach 5% in the second half of 2025,” said David Druey, regional president of Centennial Bank in Florida. However, this is purely speculation – and several factors could change this timeline.
LoanDepot sales manager Debbie Calixto emphasizes that upcoming decisions from the Federal Reserve could impact this.
“Their next steps will depend on the economic data released between now and then,” Calixto said. ‘If the labor market continues to weaken and inflation increases [stays] If rates are moderate, the Fed can continue [more] moderate interest rate cuts even as economic strength continues.”
Adding to this complexity is the problem of low housing stock, which continues to persist property value higher. This in turn puts more pressure on interest rates.
Although United American Mortgage Corporation loan officer Dean Rathbun observes a stabilizing market post-election, he emphasizes that predicting future interest rate changes remains a challenge.
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These factors could cause mortgage rates to fall faster than expected
According to Rathbun and Robert Driscoll, director of home lending at Rockland Trust, several key economic factors could accelerate the decline in mortgage rates, including:
- The Interest on 10-year government bonds: When bonds fall, mortgage rates often follow suit.
- Interest rate cuts by the Federal Reserve: While these directly impact certain types of loans, they can also impact the broader mortgage market.
- Unemployment trends: Rising unemployment often leads to lower rates. This is because investors are concerned about future expenses and are moving money to safer investments.
- The consumer price index (CPI): Lower inflation rates generally help lower mortgage rates.
- Global events: International conflicts can affect trade and oil prices. This affects inflation – and changes in inflation affect rate decisions.
- Market employment data: Strong job reports keep rates higher. On the other hand, weaker data could weigh on interest rates as the Fed tries to support the economy.
Should you wait for lower rates before you can buy a house?
While you may plan to wait for interest rates to drop before buying a home, many experts recommend not waiting for the perfect rate to buy a home.
“If you are in a position to buy a house and can afford the monthly payments, I recommend going for it,” Calixto emphasizes. She points to buyers who waited through 2020’s price increases and are now priced out of the market.
This view has strong support across the sector. For example, Driscoll agrees that personal goals and financial preparedness should drive purchasing decisions, not market timing. Not in the current competitive housing market fix a rate now could mean missing out on the ideal home for your family.
Rising home prices can also offset any savings from lower interest rates refinancing is always an option for homeowners buying now. Meanwhile, those on the sidelines risk losing their dream home and the chance to get started building equity.
The bottom line
It is difficult to predict exactly when mortgage rates will reach 5%. This could happen by the end of 2025, but market conditions could accelerate or delay this timeline. “Some consumers believe rates will fall in the next two to four months [but] That may never happen,” says Rathbun. He warns that interest rates generally fall much more slowly than they rise.
Instead of waiting for the perfect rate, it may make sense to meet with several lenders to understand your current options and budget. They can help you determine whether buying now makes sense for your situation, and explain how refinancing could work if and when interest rates drop.
Keep in mind that while mortgage rates are important, finding the right home within your budget is more important. Waiting too long could mean missing out on both.
