The Mortgage Bankers Association (MBA) forecast that a 30-year fixed mortgage rate would drop to 5.9% at the end of 2025 and remain close to that for the forecast horizon. That’s lower than last week’s rate of 6.54%, but not a freefall.

The risk of growing budget deficits will keep longer term rates from falling further, even as the Fed cuts short-term rates. The MBA made the forecast at 2024 Annual Convention & Expo in Denver over the weekend.

The spread between mortgage and Treasury rates, at around 240 basis points currently, remains roughly half a percentage point wider than historical averages. MBA expects additional narrowing of this spread in 2025 as investors reallocate out of cash and into longer-term assets.

There were positive signs for production profitability starting in the second quarter of the year, after eight consecutive quarters of net production losses, said Marina Walsh, the MBA’s vice president of industry analysis, in a statement.  

“Production volume began to pick-up in the second quarter which led to a reduction in per-loan costs,” said Walsh. “With more volume forecast in 2025 and 2026, lenders may be poised to increase their head counts after two of the most difficult years in the mortgage business, but cost escalation remains an ongoing concern”

Mortgage servicing has enabled many lenders to stay profitable overall, Walsh said.

“We may see delinquencies rise modestly due to a slowing economy, natural disasters and payment shock from increasing property taxes, insurance and HOA and condo fees,” Walsh said. “Fortunately, between accumulated equity that stands at over $35 trillion and loan workouts, homeowners have more flexibility to resolve hardships.”