Experts predict mild decline in mortgage rates following Fed's historic cut

The Federal Reserve’s recent rate cut could signal a period of lower mortgage rates, according to industry experts. Predicting financial market movements is complex, influenced by numerous economic variables and unforeseen events like the COVID-19 pandemic.

Realtor.com® compiled quarterly mortgage rate forecasts from three major firms: the Mortgage Bankers Association (MBA), Fannie Mae, and Wells Fargo. By Q4 2025, Fannie Mae expects the 30-year fixed mortgage rate to average 6.2%, the MBA predicts 6.0%, and Wells Fargo forecasts 5.9%. These projections indicate a mild decrease in mortgage rates over the next 18 months.

Realtor.com Chief Economist Danielle Hale anticipates a similar trend. "While rates are expected to bounce around a bit, we expect them to be in the low 6% range by year's end," she said. "The Realtor.com forecast also anticipates that mortgage rates will move lower, perhaps into the upper 5% range by the end of 2025."

Mortgage rates peaked at a multidecade high of 7.79% for an average 30-year fixed home loan in October 2023 but have since eased to their lowest point in over a year at 6.09% as of September 19.

Despite these declines, current rates remain above pre-pandemic levels of approximately 3.5% to 5.5%. Even if Wells Fargo's optimistic forecast materializes with an average rate of 5.9%, it would still exceed pre-pandemic ranges.

Lower mortgage rates benefit both buyers and sellers but come with volatility risks. Hale advises against trying to time the market: "Figure out at what point the numbers make sense for you...and leverage online tools to set up your home search so that you get alerted when homes that meet your needs and fit your budget are listed for sale."

Hale highlights that lower rates enhance purchasing power: "As rates drop, the cost of financing a home purchase goes down...buyers can afford more home for the same monthly payment or buy the same home for a lower monthly payment." However, she cautions that while home prices may rise as buyers react to lower rates, those prepared may benefit before increased competition sets in.

Housing affordability remains near its worst level in four decades due to high mortgage rates driven by recent Federal Reserve policies. A reduction in mortgage rates could improve affordability slightly but not restore it to pre-pandemic levels.

A weaker-than-expected jobs report showing an unemployment increase from July 2023's 3.5% to July 2024's 4.3% has led some on Wall Street to question if Federal Reserve policies might risk recession. If economic conditions deteriorate faster than expected or enter recession territory, this could prompt further interest rate cuts from the Federal Reserve, potentially lowering mortgage rates more significantly than currently projected.