Will mortgage rates drop below 5%?

[bjl584]

When will mortgage rates go down to 5%?

When will mortgage rates go down to 5%?

Yahoo Personal Finance · Reuters

Hal Bundrick, CFP® · Senior Writer, Mortgages
Wed, June 4, 2025 at 4:18 PM EDT 4 min read


Is a mortgage rate in the 5% range the sweet spot for your home-buying budget?

With mortgage rates remaining in the 6.5% to 7% range, most housing experts aren't expecting rates to move much lower through the end of this year. However, a major economic setback could trigger much lower mortgage rates.

So, expect rates to be mostly unchanged. But prepare for 5% mortgage rates.
When will mortgage rates go down to 5%?

What would trigger lower mortgage rates? Realtor.com chief economist Danielle Hale said it's a matter of time.

"The most likely catalyst is time. As time goes by, as you get closer to that 2% inflation anchor that the Fed is targeting, it would normalize the [federal funds rate], and it would normalize longer-term interest rates," Hale told Yahoo Finance. "The federal rate would probably get back into the 2.5% range or so, which is probably enough to bring long-term yields back around 4%, and that would probably put mortgage rates in the 5.5% to 6% range."

However, the Federal Reserve continues to slow-walk rate cuts. The market isn't expecting it to lower short-term interest rates again until September at the earliest.

"You could get there faster if you were to have a recession," Hale added. "That could cause the Fed to cut rates, and you could see 5 1/2% — maybe even slightly below 5 1/2% in a really bad recession."

She noted that Federal Reserve rate cuts and lower mortgage rates are not a one-for-one proposition. Hale said that from last September through January, the Fed cut its benchmark rate by a percentage point, and mortgage rates rose almost the same amount.
Your housing market might change with 5% mortgage rates

Realtor.com research conducted in the first quarter of 2025 found that roughly 3 in 10 (29.8%) home buyers surveyed said a recession would make them at least "somewhat more likely" to buy a home.

"It seems that some shoppers are anticipating either lower mortgage rates or lower home prices, or both, in a recession to potentially create some sort of opportunity for them to buy," Hale said.

Of course, a recession could bring many complications into the affordability equation: job and income insecurity among the most likely. How will 5% rates impact buying competition?

If mortgage rates fall into the 5% range, Hale believes it would bring buyers and sellers back into the market. But would a resurging market introduce more competition for buyers?

Hale said that while home buyers are looking for lower mortgage rates, home sellers are too. Listings may increase as sellers see an opportunity to move into their next house at a reasonable interest rate: "When rates drop, normally that would increase competitiveness in the market because it creates opportunities for home buyers. But I think, interestingly, this will also create some opportunities for home sellers, so we might not see competitiveness pick up quite as much."
pare for 5% mortgage rates

The window for lower mortgage rates may open quickly — and perhaps close just as fast. As a borrower and home buyer, you'll want to be prepared.

1. Have your down payment in the bank. When an opportunity to buy presents itself, you'll have the funds ready to take action. Have enough for closing costs too.
2. Check your credit score and get your personal finances in shape.
3. Nail down your home price range and target monthly payment. Knowing how much house you can afford and narrowing down the appropriate neighborhoods can set you up for early success when the time is right.
4. Explore a prequalification. Talk to a few mortgage lenders and have your home loan options lined up. You can have the lenders in your pocket for when it's time for an official loan preapproval.

When will mortgage rates go down to 5%? FAQs

When were 5% mortgage rates common?

The average 30-year mortgage interest rate dipped into the lower 5% range for about six weeks in the summer of 2003. Then again briefly in March 2004. A longer stretch of mortgage rates near and well below 5% began during the housing crisis and recession of 2008 and lasted 14 years, ending in October 2022. Will Fed interest rate cuts drop mortgage rates to 5%?

Probably no on the Fed's current schedule. It would likely take an economic reversal, spurring further federal funds rate cuts, to get mortgage loan rates close to 5% Should I wait for mortgage rates to drop to 5%?

Buy a home when you can afford to. A mortgage rate is not a lifetime commitment. It's likely you'll own more than one house, and even if you buy at a higher rate now, you can always refinance when rates come down.

[disneysteve]

The long term average mortgage rate for a 30-year fixed rate loan in the US is 7.7%. Today's rates of 6.5 to 7.0% are quite normal. The problem is people got spoiled by the stretch of sub-3% rates we had for a few years. Those were a huge aberration historically speaking. If I was in the market to buy, I wouldn't hold my breath waiting for 5%.

When we bought our house in 1994 our rate was 9%.

[ua_guy]

Mortgage rates are more historically "normal" now than they were at <3%, but they're still technically higher than they could be. One of the influencing factors is treasury bond yields. When those rise, as they have recently due to downgraded US credit ratings (bonds have to yield more, higher risk), this keeps mortgage rates inflated.

The issue nowadays is real estate has appreciated and inflated so much that it's financial dire straits for most people to finance a house at 5, 6, 7%. In the early 90's, an example of the local market had a new 4 bedroom 2800sqft home priced at $300k, and those same homes today are selling for $1.8 Million. I'd rather have to save a $60k down payment and pay 9% on a 240k mortgage than save for a $360k down payment and pay 6% on a $1.44M mortgage. Incomes didn't increase by 6-fold over the same period.

[disneysteve]

Mortgage rates are more historically "normal" now than they were at <3%, but they're still technically higher than they could be. One of the influencing factors is treasury bond yields. When those rise, as they have recently due to downgraded US credit ratings (bonds have to yield more, higher risk), this keeps mortgage rates inflated.

The issue nowadays is real estate has appreciated and inflated so much that it's financial dire straits for most people to finance a house at 5, 6, 7%. In the early 90's, an example of the local market had a new 4 bedroom 2800sqft home priced at $300k, and those same homes today are selling for $1.8 Million. I'd rather have to save a $60k down payment and pay 9% on a 240k mortgage than save for a $360k down payment and pay 6% on a $1.44M mortgage. Incomes didn't increase by 6-fold over the same period.

Houses have absolutely become less affordable, but a 7% loan vs a 5% loan isn't going to make or break the deal. If you can afford that $1.8M home at 5%, you can probably afford it just fine at 7% too.

[ua_guy]

Houses have absolutely become less affordable, but a 7% loan vs a 5% loan isn't going to make or break the deal. If you can afford that $1.8M home at 5%, you can probably afford it just fine at 7% too.

No, but the wish is for more affordability all around. Real estate/home ownership is where most average families build their wealth.

[disneysteve]

No, but the wish is for more affordability all around.

Agreed. There is a tremendous housing shortage in this country, particularly for lower income and lower middle income folks. Builders aren't building "starter" homes anymore because that's not where the money is.

[disneysteve]

One thing that I see a lot of is new "luxury" apartments. I wish some of those were being zoned and sold as condos instead. Let people buy them instead of single homes and use them as their starter home. At least they'd build some equity. A 2 or 3-bedroom condo is likely to be more affordable than a 3 bedroom single family house. That could be a great entry point for folks into the housing market.

[Fishindude77]

Economists are projecting a small rate cut or two yet this year, but I doubt we'll get to 5%.

[LivingAlmostLarge]

Well the issue at hand is that people are not letting go of "starter" homes and hanging on because of the 3% mortgages. They don't want to move.

Then if you listen to more than one RE podcasts they talk about how the 2007-2009 builders fell behind in building affordable housing but housing in general. So there is less inventory than there should be which is where the pricing problem comes in. Everywhere we've wanted to live and live, it's mostly the desirability of the location that has driven the cost. We've usually been protected because we pick prime locations over size and shape of home. Yes we had to sit tight from our 2005 purchase but it never really dropped it was just flat until maybe 2013? in 2015 when we sold we made money even after the costs. So I'm not really sure.

But prime location is a huge factor even within cities. Again we bought what I thought was a very expensive time and point in the market. I was again wrong and our location has more than doubled.

[ua_guy]

On the flip, a lot of apartments have been turned into condos for sale with real estate booms over the last 10 years. Tenants enjoying a relatively affordable cost of living are suddenly ousted - and then have to compete with everyone else in the same situation, also driving up rent. If I've learned anything about RE, it's that it's been hard to lose money in any RE investment over the last 20 years if you just hang on to it for a little bit.

To LaL's point, we've had a stalled market with glowing, red-hot prices here in the Northwest for the last several years. Lots of folks don't want to move with low rates, raking in equity, which drives down inventory, which further delays a lot of decisions to move until folks can find the right place for them.

On a different note, we've been watching the Palm Springs market. Foreclosures are up, listings are piling up, and prices are falling. This past season (the cool season, good for moving, Oct-March) was lackluster, with a lot of people putting their retirement plans on hold. Realtors told us about the huge decline in retirees moving to the area not just for cost, but uncertainty. The local economy there is mostly service industry and ebbs/flows with the retirement population and big events, so the desert cities could see a big implosion coming.

[disneysteve]

On a different note, we've been watching the Palm Springs market. Foreclosures are up, listings are piling up, and prices are falling.

I don't closely follow the market in central Florida but I am still on the mailing list for the one neighborhood where we were considering buying. I get the new listings emailed to me. This is a very nice gated community of manufactured homes. We have friends who live there and love it. When we were looking a few years ago, prices were running in the 150-200K range and homes sold quickly. That stayed pretty steady until recent months when I started noticing follow up emails for price drops telling me that homes weren't moving so easily. I started seeing 100-150K more often. A couple of days ago I got a listing for one of the smaller homes, a 2-bedroom one, for $69,900. I'm sure the 2-BR homes are less desirable in general but 70K is crazy. It's a great, well managed, well maintained development with plenty of amenities (clubhouse, lake, activities, etc.) just 15 minutes from Disney World. Prime real estate. I'm almost tempted to grab it.

[ua_guy]

I don't closely follow the market in central Florida but I am still on the mailing list for the one neighborhood where we were considering buying. I get the new listings emailed to me. This is a very nice gated community of manufactured homes. We have friends who live there and love it. When we were looking a few years ago, prices were running in the 150-200K range and homes sold quickly. That stayed pretty steady until recent months when I started noticing follow up emails for price drops telling me that homes weren't moving so easily. I started seeing 100-150K more often. A couple of days ago I got a listing for one of the smaller homes, a 2-bedroom one, for $69,900. I'm sure the 2-BR homes are less desirable in general but 70K is crazy. It's a great, well managed, well maintained development with plenty of amenities (clubhouse, lake, activities, etc.) just 15 minutes from Disney World. Prime real estate. I'm almost tempted to grab it.

Rental income opportunity, sounds like..

[disneysteve]

Rental income opportunity, sounds like..

If I were so inclined, definitely, but I have zero interest in ever being a landlord, especially 1,000 miles away. I know I could hire a property manager to handle everything but it's just not something I have any desire to get involved with.