With interest rates hitting a two-decade high, many consumers across the Huntsville area wonder where rates are headed for the rest of 2024 and into 2025.

Higher interest rates, along with higher prices have affected housing affordability where the median household income can no longer afford the median priced home in the Tennessee Valley.

In a normal year we probably would not see interest rates fall because of the strong job numbers and inflation not yet hitting the Fed’s desired 2% range, The Fed likes to save rate cuts to help pull the US out of a recession. However, this is not a normal year. It’s an election year and the Fed is likely feeling the political pressure.

The Wall Street Journal recently reported President Biden saying “I’ll bet you those rates come down more, because I bet you that little outfit that sets interest rates is going to [bring them] down” at a campaign rally.

Towards the end of 2024, I think we’re going to see interest rates in the mid 6’s for conventional loans and high 5’s on government loans. We’ll likely see the first Fed rate cut this summer and an additional two cuts by the end of the year.

This lines up with predictions from Fannie Mae where they are predicting rates to hit 6.4% by the end of Q4 and 6% by the end of 2025. Rates in the 6’s and 7’s are average interest rates over the course of US history.

For all of my engineer readers that want to look to time interest rate drops, keep an eye on the 10 Year Treasury yield and also quantitative easing.

Historically, the spread between the 10 year treasury yield and 30 year mortgage rates is 1.7%. The spread is now over 3% due to fear and uncertainty that has been baked into the market place. As the 10 year treasury comes down, expect to see mortgage rates come down.

If the world begins to appear less risky, then expect for that 3% premium come down. The other thing to keep an eye on is quantitative easing. The Fed currently holds $2.4 Trill in mortgages on their balance sheet and had set a goal of trimming that balance by $35 Billion per month. They have not been selling off their assets to achieve this goal, only allowing them to fall off of the books through maturity.

If they announce they’re going to begin selling these assets again, then expect for interest rates to increase. Be careful with trying to time interest rate drops though if you’re a value shopper because prices are likely to increase as interest rates become more affordable.

With the additional money printing and inflation that is predicted by Forbes and many others.

I don’t see a world where we hit rates in the 2’s or 3’s again in our lifetimes. Declining interest rates this year will likely also trigger higher home values as real estate investment firm Blackstone is encouraging investors to begin buying now.

With increased money printing and inflation by 2030 we might wish we could return to the prices and interest rates of 2024 and 2025.