When mortgage rates will cross the ‘key threshold’ that unfreezes the housing market, according to five economists

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Rates are falling, but when will the rate on the 30-year mortgage dip below 6%? Most economists expect that threshold to be crossed in 2025 — with one notable exception.

If rates fall significantly from their current average of 6.63%, that could prompt homeowners who currently have mortgages with rates far below 6% to consider selling, because their interest costs would not jump higher with a new mortgage. That could somewhat ease the so-called lock-in effect that’s been hampering home sales.

“There is a magic number for fixed mortgage rates that I think would unfreeze the housing market — in other words, a price bringing together willing buyers and sellers; a market-clearing price,” DoubleLine portfolio manager Ken Shinoda said in December. “By my lights, that number has a 5% handle.”

Though the vast majority of economists don’t expect the rate on the 30-year mortgage to fall to that “magic” 5%, they anticipate that a drop in rates below 6% would be significant. 

“Six percent is a key threshold for the housing market, as that appears to be the rate necessary to restore affordability to the point that home buyers and sellers begin to transact in earnest,” Mark Zandi, the chief economist at Moody’s

Analytics, told MarketWatch. 

Here’s what economists had to say about when they expect rates to fall below that 6% mark.

Fannie Mae: Rates will fall below 6% by end of 2024

By far the most optimistic of the lot, housing-finance giant Fannie Mae is expecting the rate on the 30-year mortgage to fall below 6% by the end of the year.

“However, even at less than 6%, we think rates will still have a significant way to go in order to meaningfully reduce the ‘lock-in effect’ experienced by homeowners who refinanced or bought during the pandemic,” the company added. 

Redfin: Rates will fall below 6% by 2025

Real-estate brokerage Redfin’s chief economist was less convinced that rates would dip below 6% by this year, but said they could get there in 2025.

“I don’t think that we’re going to get there this year. The Fed is dragging their feet on lowering interest rates,” Daryl Fairweather, the chief economist at Redfin, told MarketWatch. “But at the same time, it’s incredibly hard to predict. … If there was a recession, then interest rates would drop.”

Moody’s Analytics: Rates will fall below 6% in early 2025

Zandi, of Moody’s Analytics, was of the same mind.

“I don’t expect the 30-year fixed mortgage rate to fall consistently below 6% until this time next year,” he said. 

For mortgage rates to fall below 6%, the spread between the 10-year Treasury yield and the current rate needs to narrow, and that is currently “very wide,” he noted. As of Thursday afternoon, the rate on the 30-year mortgage was averaging 6.63%, based on Freddie Mac data, while the 10-year
yield was at 3.87%.

“The spread will narrow once the Federal Reserve begins cutting rates, likely in May, but it will narrow only slowly as the Fed continues with its quantitative tightening and other historical buyers of mortgages, such as the banks, remain largely on the sidelines given their balance-sheet problems,” he added.

Mortgage Bankers Association: Rates will fall below 6% in first quarter of 2025 

The MBA, a trade group representing the mortgage industry, expects the 30-year rate to fall below 6% in the first quarter of 2025, to 5.9%.

MBA expects the spread between the 10-year Treasury yield and 30-year-mortgage rates to “tighten further” by the end of the year, which will push mortgage rates down. 

Nationwide: Rates will fall below 6% in second quarter of 2025

Nationwide Mutual Insurance Company’s chief economist, Kathy Bostjancic, expects the Fed to wait until May before cutting rates, which means that sub-6% mortgage rates will likely only appear next year.

“Inflation will be the key reason for them to reduce the fed-funds target range, but we also expect slower employment and a mild recession unfolding midyear to lead them to lower the [rate],” she explained.

Bostjancic is forecasting the 30-year-mortgage rate to fall to 6.3% by the end of 2024, and to fall below 6% in the second quarter of 2025.

Related: Falling mortgage rates boost home buyers’ purchasing power by almost $40,000 — but also bring back bidding wars

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