When Will Mortgage Rates Go Down? Expert Insights and Predictions for Homebuyers

Understanding when mortgage rates will decrease involves looking at the factors that led to their rise. Primarily, inflation has played a significant role. As inflation surged, the Federal Reserve raised its interest rates to curb spending. The central bank increased its benchmark federal funds rate—how banks borrow money from each other—11 times across 2022 and 2023, elevating it from nearly 0% to a range of 5.25% to 5.50%.

Although mortgage rates aren't directly tied to the Fed rate, they tend to climb when it increases. While the Fed's efforts have successfully lowered inflation somewhat, it hasn't been enough. As of April 2024, the inflation rate was 3.4% year-over-year, still above the Fed's 2% target. Consequently, the Fed has maintained its higher interest rates to further reduce inflation.

These persistently high rates have kept current mortgage rates elevated. Experts suggest that until the Fed decides inflation is under control and begins to lower its benchmark rate, mortgage interest rates will likely remain high.

Economic Indicators and Mortgage Rates

For mortgage rates to decrease, several economic indicators need to show improvement. Evan Luchaco, a home loan specialist at Churchill Mortgage in Portland, Oregon, explains: "To see rates improve, we need to see inflation numbers decreasing, new job creations slow down, and potentially an increase in unemployment filings. These are signs of an economic slowdown that could prompt the Fed to lower the federal funds rate, subsequently lowering mortgage rates."

Luchaco anticipates this could begin toward the end of the year, though it's not guaranteed. The CME FedWatch Tool, which predicts future Fed actions based on investment activity, indicates a small rate cut might happen at the September meeting, with more potential cuts following.

Jennifer Beeston, senior vice president of mortgage lending at Guaranteed Rate, adds: "For rates to come down, inflation must ease. Current economic predictions suggest this might occur in the fall, but predictions have been off the mark for the past two years."

Mortgage Rate Predictions

Accurate predictions for when mortgage rates will fall are challenging, as they vary based on the source. Here’s a snapshot of projections from major industry players for the next few years:

• Mortgage Bankers Association: Rates might reach 6.5% by the end of 2024.

• Fannie Mae: Rates could stay around 7% through 2024.

Both forecasts suggest a gradual decrease in rates over the next year or two, with no drastic drops to the 3% or 4% rates seen during the COVID-19 pandemic. Neil Christiansen, a home loan specialist at Churchill Mortgage in Denver, notes, "A significant drop in rates would only occur if the U.S. entered a deep recession. If the Fed sees economic stalling, they might cut rates significantly to stimulate growth, but this seems unlikely in the current climate."

Should You Wait for Lower Mortgage Rates to Buy a House?

While mortgage rates are expected to fall gradually over the next few years, they might not decrease significantly. Whether to wait for lower rates depends on individual circumstances. Jennifer Beeston advises, "For those waiting for rates to drop, I often show the current payment versus a potential lower rate. The difference is usually less than expected, especially on smaller mortgages."

Housing Market Conditions

Beyond mortgage rates, consider housing market conditions. Lower rates might lead to increased competition for properties, driving up home prices and sparking bidding wars. As Luchaco points out, "Home prices aren't expected to drop significantly. Lower rates will likely draw more buyers into the market, increasing demand and pushing prices up."

Most experts recommend buying a home when it makes sense for you financially. If you can afford a rate and payment now, it may be worth buying and refinancing later if rates drop. Christiansen advises, "Waiting can cost you in terms of appreciation and loan pay-down. The longer you wait, the more you miss out on opportunities to build equity."

How to Get a Lower Mortgage Rate

Although average 30-year fixed mortgage rates hover around 7%, your specific rate will depend on factors like your loan amount, credit score, and lender. To secure the best rate, compare offers from multiple mortgage lenders. Freddie Mac suggests that shopping around can save you between $600 and $1,200 annually. Improving your credit score and considering an interest rate buydown are also effective strategies.

Mortgage Rate Prediction FAQs

Will mortgage rates go down in 2024?

• Rates might decrease in 2024, but predictions vary. The Mortgage Bankers Association forecasts a 6.5% rate by year-end, while Fannie Mae predicts around 7%.

• Will mortgage rates ever drop to 3% again?
  

• Rates hitting 3% or lower would require extreme economic conditions, similar to those during the peak of the COVID-19 pandemic.

• What will mortgage rates look like in five years?

• Projections suggest rates on 30-year mortgages might drop to 5.9% by the end of 2025, according to the Mortgage Bankers Association, with Fannie Mae forecasting a 6.6% rate.

• Are mortgage rates going down?

• Currently, mortgage rates are not decreasing significantly, remaining in the 6% to 7% range for the past two years.