After soaring earlier this year due to stubbornly high inflation, mortgage rates have fallen to just over 6%, the lowest in about a year, on the tail of the July FOMC meeting and a disappointing jobs report. As a result, buyers already see lower mortgage rates and may see them fall further if the Fed reduces the federal funds rate in September, as expected.
Mortgage rates climbed for most of 2023, at one point reaching nearly 8%—a level not seen in two decades. Most economists anticipated that mortgage rates would reverse course once again this year. Now, when will rates drop enough to shift housing affordability in the right direction?
Will mortgage rates go down and stay there?
The consensus among industry professionals is that mortgage rates will decline in the last quarter of 2024. The CME Group FedWatch Tool, which uses investment activity to predict future Fed moves, indicated a 100% probability that policymakers will reduce the federal funds rate at their September meeting and an increasing likelihood of more than one rate cut before the end of 2024.
Historical mortgage rates
When 2023 ended, the average rate on a 30-year fixed-rate mortgage was 6.61%, according to Freddie Mac, and it's hovered in the mid-6% to low-7% range ever since. While that's about average historically–and down a bit since rates peaked at 7.79% last October–such high rates were unthinkable a few years ago.
In 2020 and 2021, the Federal Reserve held short-term interest rates near zero to spur the pandemic-battered economy, and mortgage lenders offered rates below 3%. This pushed up demand for mortgages from home buyers, as well as from homeowners looking to refinance existing loans. Once the Fed started raising rates to fight inflation in March 2022, though, mortgage lenders reversed course. The result was steadily rising home-financing costs, slowing home sales, and leading to essentially nonexistent refinance demand.
As we entered 2024, inflation was trending downward, and the Fed had indicated rate cuts could be coming soon. Since then, though, inflation has ticked upward which has led the Fed to stall on cutting rates. Wall Street investors expected that trend to continue for the next few Fed meetings, with rate cuts potentially coming in September or later.
While the Fed doesn't set mortgage rates, lenders tend to follow the Fed's lead.
Mortgage rates and affordability
Lower rates would make new mortgage payments lower, but even then buyers shouldn't expect any drastic improvements in overall affordability-especially with home insurance costs on the rise.
On a $500,000 loan, for example, a 6% rate would mean a monthly mortgage payment of $2,998. Compared to Realtor.com's projected year-end 6.5% rate, that payment is lower by a mere $167.
Here's a look at how payments could shift based on small changes in mortgage rates:
| Interest rate | Monthly principal and interest payment on $500,000 loan |
| 7.00% | $3,326 |
| 6.75% | $3,242 |
| 6.50% | $3,160 |
| 6.25% | $3,078 |
| 6.00% | $2,997 |
| 5.75% | $2,917 |
| 5.50% | $2,838 |
| 5.25% | $2,761 |
| 5.00% | $2,684 |
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Meet the contributor
Aly J. Yale is a contributor to Buy Side from WSJ and a personal finance journalist with work featured in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.
