Are we still in an environment of falling mortgage rates? Loaner

Mortgage rates have been very turbulent this year. The 30-year fixed rate started 2024 at around 6.625% and is currently not far from those levels.

Despite this, rates were as low as 6% and as high as 7.50%. So there’s been a lot of diversity over the last 50 weeks.

Rates rebounded last December after the Fed revealed it was ready to change course and begin easing monetary policy.

But as always, they fluctuated along the way, instead of just falling lower and lower, with the last couple of months seeing a higher roller coaster ride.

However, we remain in a falling 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 year over year.

The latter can give you an overview of the trend, whether it’s house prices or mortgage rates.

For example, house prices may decline month-over-month, but still see year-over-year gains thanks to stronger months.

Regarding mortgage rates, I have been saying since mid-September that we remain in a falling rate environment.

Why did I have to do it? Because 30-year fixed rates went from around 6% to 7% in less than two months.

Many feared the worst. That the recent rate improvement was just another deception. And a return to 8% or more was imminent.

After all, we’ve seen this movie before, as recently as spring of this year, when the 30-year fixed rate rose from 6.5% to 7.5%.

But my argument has always been that we have seen lower highs. So it was first 8%, then 7.5% and more recently 7%.

Additionally, mortgage rates have risen above their levels from a year ago, showing a long-term trend rather than short-term noise.

But they will have to continue to fall thanks to a recent increase

To summarize the last few months, the Fed cut rates in mid-September, which led to a slight rebound in rates.

Simply put, the reduction has been priced in, as evidenced by the rate cut of almost two percentage points compared to October 2023.

Then we got a timely hot jobs report that further propelled mortgage rates higher, followed by a presidential election.

Once it became clear that Trump was the favorite to win, rates rose further because his policies, like tariffs, were expected to be inflationary.

But eventually, this sharp rise in rates petered out and they appeared to resume their downward trajectory.

Ultimately, it’s the economic data that matters and it continues to show slowing inflation and some concern about rising unemployment.

This caused mortgage rates to fall from 7.125% to around 6.75%. The big question now is whether they can continue to fall.

As shown in the table above MNDthe 30-year fixed rate fell in early December 2023 when the The Fed suggested the hike was over and ready to cut rates in 2024.

That required the 30-year fixed rate to be below 6.82% to beat its levels from a year ago, which it barely met thanks to another subdued labor report last Friday.

It now faces an even bigger test as the 30-year fixed rate was 6.65% in mid-December 2023, meaning we’ll need to see rates improve further over the next week to reach/beat these levels.

Of course, it doesn’t have to be perfect.

Can mortgage rates return to less than 6% by February?

While rates certainly appear to be moving in the right direction after the dust settles from the election, they still have work to do.

In order to continue to stay below year-ago levels, they will need to fall another 10 basis points over the next week, which seems reasonable.

But to reach lower highs in 2025, they will need to continue to improve and enter the 5 range, given that we saw a rate of 6.125% earlier this year.

They have time to do it, but mortgage rates tend to be lowest in the winter, so maybe it will happen sooner rather than later.

The last time the 30-year fixed rate was below 6% was actually February 2, 2023, when it hit 5.99%, per MND. This situation was very short-lived and rates rose to 7% during the same month of March.

However, it is possible that rates will continue to drift like this until 2025, split between some improvements this month and in January.

And that’s not really a big question considering the 30-year fixed rate was 6.125% as of mid-September. Also note that rates tend to fall for several years after a Fed pivot.

Conversely, the biggest risk of rising mortgage rates in the near term, aside from any strong economic data such as higher inflation or lower unemployment, would be noise related to the inauguration.

There has been relative calm of late, but as that date approaches, government spending and inflation talk could pick up again in early 2025.

Still, it wouldn’t surprise me to see mortgage rates continue to fall in 2025 and remain in a falling rate environment.