It’s been a wild ride for mortgage rates this year. The 30-year fixed yield started 2024 at around 6.625% and is currently not far from those levels.
However, rates were as low as about 6% and as high as about 7.25%. So there’s been a lot of range over the last 50 weeks or so.
Interest rates rose last December after the Federal Reserve revealed its willingness to change and begin easing monetary policy.
But as always, interest rates have ebbed and flowed along the way, rather than simply falling lower and lower, with a spike in the past couple of months.
However, we are still in a low interest rate environment, even if rates are not currently at their 2024 lows. Let me explain.
Mortgage rates are better than their levels a year ago
Many things, including home prices and mortgage rates, are measured monthly and annually.
The latter can give you a bigger picture of the trend in something, whether it’s home prices or mortgage rates.
For example, home prices may decline from month to month, but still post year-over-year gains thanks to stronger months along the way.
When it comes to mortgage interest rates, I have argued since mid-September that we are still in a low interest rate environment.
Why did I have to? Because interest rates on 30-year bonds rose from about 6% to 7% in less than two months.
Many people feared the worst. That the recent improvement in interest rates was just another falsehood. A return to 8% or higher was imminent.
After all, we’ve seen this movie before, this spring, when the 30-year fixed yield rose from 6.5% to 7.5%.
But my argument has always been that we’ve seen lower upsides. So at first it was 8%, then 7.5%, and most recently 7%.
Additionally, mortgage rates were better than their levels from a year ago, showing a long-term trend rather than some short-term noise.
But they will need to continue lower thanks to the recent rally
Just to recap the last couple of months, the Fed cut interest rates in mid-September, which sold off a bit of news that interest rates were bouncing.
Simply put, the reduction has been implemented as evidenced by interest rates falling by around 2 percentage points from October 2023.
Then we got the one-time hot jobs report that sent mortgage interest rates higher, followed by a presidential election.
Once it became clear that Trump was the favorite to win, interest rates rose further, as his policies such as tariffs were expected to be inflationary.
But eventually, this surge in interest rates lost momentum and they appeared to be back on their downward path.
Ultimately, the economic data is what matters, and it continues to show slowing inflation and some concern about rising unemployment.
This has led to mortgage rates falling from 7% levels to around 6.75% again. The big question now is whether they can continue to decline.
As shown in the above chart of Multinational Divisionthe 30-year fixed fell in early December 2023 when The Fed indicated that it had been hiking Ready to cut interest rates in 2024.
That would require the 30-year fixed rate to be below 6.82% to beat last year’s levels, which it barely did thanks to another soft employment report on Friday.
It now faces a bigger test as the 30-year fixed rate was 6.65% in mid-December 2023, meaning we will need to see rates improve further over the next week to match or beat these levels.
Of course, it doesn’t have to be perfect.
Could mortgage rates return below 6% by February?
While interest rates certainly appear to be heading in the right direction now that the election dust has settled, they still have work to do.
In order to continue to stay below last year’s levels, it would need to fall another 10 basis points over the next week, which seems reasonable.
But to reach lower peaks in 2025, they will need to continue to show improvement and reach the 5S level, considering we saw a rate of 6.125% earlier this year.
They have time to do this, but mortgage rates tend to be at their lowest in the winter, so it will probably happen sooner rather than later.
The last time the 30-year fixed rate was below 6% was actually on February 2, 2023, when it reached 5.99% per 1 million BHD. It did not last long, and interest rates jumped to 7% in March itself.
However, rates will likely continue to drift this way through 2025, split between some improvements this month and in January.
Which isn’t really a big question if you consider that the 30-year fixed rate was 6.125% in mid-September. Also note that rates tend to fall for several years after the Fed switches.
Conversely, the biggest risk to rising mortgage rates in the short term, other than any strong economic data such as higher inflation or lower unemployment, will be inauguration-related noise.
There has been relative calm recently, but with that date steadily approaching, government spending and inflation rhetoric could pick up again in early 2025.
However, it would not surprise me to see mortgage rates continue to decline in 2025 and remain in a low interest rate environment.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My work experience in the early 2000s inspired me to start writing about mortgages 18 years ago to help potential (and current) homebuyers better navigate the home loan process. Follow me on Twitter for hot takes.
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