Will Mortgage Rates Ever Drop Below 5% Again?

If you're like many people thinking about buying a home or even just keeping an eye on your current mortgage, the question of whether mortgage rates will ever drop below 5% again is probably on your mind. It feels like just yesterday we saw those incredibly low rates, and the thought of getting back to that level is certainly appealing.

Well, based on where things stand in late April 2025, it looks like we might have to wait a while longer, and honestly, there's a good chance we won't see rates consistently below 5% in the next couple of years. Currently, the average 30-year fixed mortgage rate is hovering around 6.82% to 6.92%, and while that's a bit lower than the peak we saw recently, it's still a far cry from those sub-5% days.  Let's dive in and explore this important question together.

Will Mortgage Rates Ever Drop Below 5% Again?

A Look Back: The Wild Ride of Mortgage Rate History

To get a better grasp of where we might be headed, it's helpful to take a little trip down memory lane and see where mortgage rates have been before. Trust me, it's been a rollercoaster!

Think back to the 1970s and 1980s – mortgage rates were sky-high, often in the double digits. Can you imagine paying over 18% interest on your home loan? That was the reality for many folks back then, largely due to some serious inflation and a volatile economy.

Fast forward to more recent times, and we saw a completely different picture. The early 2020s were a period of unprecedented low mortgage rates. During the peak of the COVID-19 pandemic, the 30-year fixed rate actually dipped below 3%, hitting an all-time low of 2.65% in January 2021. This was a perfect storm of factors: a lot of economic uncertainty, low inflation, and the Federal Reserve taking some pretty aggressive steps, like dropping interest rates close to zero, to try and keep the economy afloat.

But as things started to recover and inflation became a real concern in 2022, the script flipped. Mortgage rates started their climb, and by late 2023, they had surged above 7%, even touching 8.01% at one point. Since then, we've seen some stabilization, with rates settling into the mid-6% range. This tells me that the ultra-low rates we saw were likely an exception, driven by very specific and unusual circumstances.

What the Experts Are Saying: Forecasts for 2025 and 2026

Now, let's talk about what the people who spend their days analyzing this stuff are predicting for the near future. Based on the latest forecasts from various reputable institutions for 2025 and 2026, the general consensus is that we're unlikely to see mortgage rates drop below 5%.

Here's a quick look at what some of the big players are expecting:

Institution	2025 Forecast	2026 Forecast	Source
Fannie Mae	6.2%	6.0%	Fannie Mae Economic Developments
Mortgage Bankers Association (MBA)	6.5%	6.4%	MBA Mortgage Finance Forecast
National Association of Home Builders (NAHB)	6.65%	6.19%	NAHB Macro-Economic Outlook
National Association of Realtors (NAR)	6.4%	6.1%	NAR Economic Outlook
Wells Fargo	6.53%	6.46%	Wells Fargo Housing Market Outlook
Realtor.com	6.3%	6.2%	Realtor.com Housing Forecast

As you can see, most experts anticipate rates staying in the mid-6% range throughout 2025, with a possibility of a slight dip in 2026, but still well above that 5% mark. For example, Fannie Mae, in its latest April Forecast, thinks rates might edge down from around 6.8% at the start of 2025 to about 6.2% by the year's end. Mortgage rates to end 2025 and 2026 at 6.2 percent and 6.0 percent, respectively, down from 6.3 and 6.2 percent in their prior forecast.The MBA is predicting a more gradual decline, reaching around 6.4% in 2026.

I even came across a CBS News article from late 2024 that floated the idea of rates potentially hitting 5% by the end of 2025, but with us already being well into 2025 and rates still above 6%, that seems increasingly improbable. Some analysts, like Lisa Sturtevant from Bright MLS, are even suggesting that a 6% rate might just be the “new normal” for the 30-year fixed mortgage, a sign that the super-low rates of the early 2020s were an unusual blip.

Now, it's important to remember that these are just forecasts, and the future can be unpredictable. However, the consistency across these different expert opinions gives us a pretty strong indication of what to expect in the near term.

The Economic Puzzle: What Drives Mortgage Rate Movements?

So, why are mortgage rates the way they are, and what needs to happen for them to potentially drop significantly? It all boils down to a complex interplay of several key economic factors:

• Inflation: This is a big one. When the cost of goods and services goes up (inflation), lenders need to charge higher interest rates to make sure they're still getting a real return on their money that isn't being eaten away by rising prices. The high inflation we've seen in recent years has been a major reason for the elevated mortgage rates. While inflation has cooled off a bit since its peak in 2022, it's still higher than the Federal Reserve's target, which keeps upward pressure on rates.
• Federal Reserve Policies: The Fed plays a crucial role. While the Federal Reserve's federal funds rate doesn't directly set mortgage rates, it has a significant indirect influence. When the Fed raises its benchmark rate, it makes borrowing more expensive across the board, which can lead to higher mortgage rates. The Fed aggressively hiked rates in 2022 and 2023 to fight inflation, pushing the federal funds rate to a high of 5.25% to 5.5%. While there have been some small cuts recently, the impact on mortgage rates has been limited so far.
• The Bond Market: Here's a connection you might not immediately think of: mortgage rates are very closely linked to the yield on 10-year Treasury notes. These are essentially IOUs issued by the U.S. government. When investors demand a higher return (higher yield) on these safe-haven bonds, mortgage rates tend to follow suit. This is because mortgage-backed securities, which are what many mortgages are bundled into, compete with Treasury bonds for investor dollars.
• Economic Growth: A strong and growing economy usually means more demand for borrowing, which can push interest rates higher. On the flip side, if the economy starts to slow down, demand for loans might decrease, potentially leading to lower rates.
• Housing Market Dynamics: While not the primary driver, the health of the housing market can also have an impact. For example, if there's very low inventory (not many homes for sale) but still strong demand from buyers, this can help to sustain higher mortgage rates.
• Global Events: Believe it or not, things happening across the globe can also affect mortgage rates. Geopolitical tensions or economic crises in other parts of the world can impact investor confidence, which can then influence Treasury yields and, consequently, mortgage rates.

So, what would it take for mortgage rates to fall below 5% again? Based on these factors, we'd likely need to see a combination of things happen: significantly lower inflation, the Federal Reserve making substantial cuts to interest rates, and potentially some slowing in economic growth. The ultra-low rates we saw in 2020-2021 were a result of a unique set of these conditions all aligning, and right now, the economic picture looks quite different.

The Long View: Could Sub-5% Rates Return Eventually?

While the near-term outlook suggests staying above 5%, what about further down the road? History tells us that mortgage rates can indeed fluctuate quite a bit over the long term. We saw rates dip below 5% in 2019 (averaging 3.94%), as well as throughout 2020 and 2021, thanks to those specific economic circumstances I mentioned earlier.

If the economy were to experience another significant downturn, like a recession, or if inflation were to settle at very low levels for an extended period, then it's certainly possible that rates could once again find their way below 5%. However, many experts believe that the ultra-low rates of the early 2020s were an anomaly, a once-in-a-lifetime event. As the economy continues to normalize, we might see mortgage rates settle into a higher range, with 6% or even higher becoming more typical.

There are also other uncertainties on the horizon. For instance, potential shifts in government policies, like changes to tariffs or trade agreements, could impact the economy and, in turn, interest rates. I even saw a U.S. News survey that found a significant chunk of homebuyers are holding out for rates below 5%, but many analysts are cautioning that this expectation might be unrealistic in the foreseeable future.

What This Means for Homebuyers and Homeowners

For those of you hoping to snag a mortgage with an interest rate below 5%, the current situation suggests that you might need to be patient. However, waiting for rates to drop significantly could also mean missing out on opportunities, especially if home prices continue their upward trend. As some experts have pointed out, if you can comfortably afford the monthly payments at today's rates, delaying your purchase in hopes of a big rate drop could actually end up costing you more in the long run due to rising home prices.

If you're already a homeowner, keeping a close eye on interest rates is always a good idea. While a small dip in rates might not warrant a refinance, if rates do come down more substantially in the future, refinancing could be a way to lower your monthly payments and save money over the life of your loan. Organizations like the HomeOwners Alliance recommend working with mortgage brokers to stay informed about the best deals and potentially locking in rates if you find a good opportunity.

Final Thoughts:

So, to bring it all together, while the dream of seeing mortgage rates drop below 5% again is still alive for many, the current economic outlook and expert forecasts suggest that it's unlikely to happen in the near term, specifically in 2025 or 2026. We're more likely to see rates settle in the mid-6% range for the foreseeable future.

It's important to remember that the economy is constantly evolving, and unexpected events can always throw a wrench in the works. While a significant economic shift could potentially bring rates down in the long run, relying on that in your immediate decision-making might not be the most strategic approach.

My advice? Focus on the current market conditions, understand what you can comfortably afford, and consult with experienced mortgage professionals to make informed decisions. Whether you're a first-time buyer or a current homeowner, staying knowledgeable and adaptable is key to navigating the ever-changing world of mortgage rates.