When Will Mortgage Rates Come Down?

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We were expecting mortgage rates to fall in 2023, but they’ve stayed higher and even ticked up in recent days, dancing around 7%. This is due to continued resilience in the U.S. economy, according to some of the nation's leading real estate economists.

Currently, the 30-year fixed mortgage rate is expected to remain above 6% through the remainder of 2023. In part this is due to the Fed’s recent interest rate hikes. Different lenders and industry players have differing predictions of where rates are headed, but overall the consensus is that rates will ultimately begin to drop, and continue to do so into 2024. Risha Kilaru of OriginPoint offers a look at their forecasts.

Where Are Mortgage Rates Headed?

Fannie Mae
Fannie Mae expects the 30-year mortgage rate to average 6.6% in 2023 and 6.1% in 2024.. The mortgage giant does not expect rates to dip below 6% until the fourth quarter of 2024.

Mortgage Bankers Association
MBA’s July Mortgage Finance Forecast has a more optimistic outlook, with the 30-year mortgage rate falling to 5.9% by the end of 2023. Conditions improve in 2024, with the industry group projecting rates to fall below 5% in the fourth quarter.

Wells Fargo
In its latest U.S. Economic Outlook, Wells Fargo puts the 30-year conventional mortgage rate at 6.7% in the third quarter of 2023, pulling back somewhat to 6.45% in the fourth quarter. The bank’s forecasting group predicts that rates will fall below 6% in the second quarter of 2024.

The Mortgage Bankers Association
The D.C.-based trade group projects that the 30-year fixed mortgage rate will average 5.9% in the third quarter of 2023. Beyond this year, the group expects mortgage rates to slide to 4.9% the third quarter of 2024.

Morningstar
Economists at Morningstar project that the average 30- year fixed mortgage rate will average 6.25% in 2023, 5.0% in 2024, and 4.0% in 2025.

Goldman Sachs
The investment bank projects that the 30-year fixed mortgage rate will end 2023 at 6.4%. In 2024, Goldman Sachs expects the 30-year fixed mortgage rate will average 5.9%.

The National Association of Realtors (NAR)
Economists at NAR forecast that the 30-year fixed mortgage rate will slide to 6.4% before the end of 2023, and then to 6.0% in 2024.

Morgan Stanley
The Agency MBS strategists at Morgan Stanley project that the 30-year fixed mortgage rate will start 2024 at 6.0%.

Moody’s Analytics
The financial intelligence arm of Moody’s still projects that the 30-year fixed mortgage rate will average 6.5% through most of 2023. Moody’s Analytics chief economist Mark Zandi expects that to slide to 6.0% by the end of 2024, and then hit 5.5% in 2025.

Realtor.com
Economists at the home listing site believe the 30-year fixed mortgage rate will start 2024 at 6.1%.

Bottom line: The overall consensus is that rates will come down in 2024. Some predict as early as 1st quarter of 2024 and rates dropping to as low as 4.9%. Housing market will likely takeoff as inventory will hopefully increase!

Why Are Mortgage Rates So High?

The current high mortgage rates are a byproduct of the Fed’s battle to bring annual inflation back to its 2% target. The central bank raised the federal funds rate seven times in 2022 and another four times so far in 2023, with the latest 25-basis-point rate hike coming at its July meeting. The Fed uses these rate hikes to sort of pump the brakes on the economy. Inflation is currently hovering at or above 3%. This is certainly better than May’s 4%, but there’s still some way to go. The Fed doesn’t actually set mortgage rates directly, just the rate at which financial institutions lend money to each other. However, those higher costs may be passed on to consumers in the form of higher interest rates on lines of credit, auto loans, and to some extent mortgages.

It’s also worth noting that, while current rates are higher than they’ve been in recent years, taken in a wider context, they are pretty moderate. Throughout the ‘90s, mortgage rates wavered from 7% to almost 10%, and in 1981, they hit an astonishing high of over 18%.

Should I Wait for Rates to Drop?

While it’s understandable to be deterred by higher rates, they are just one factor to consider as a homebuyer. Patience doesn’t always pay off. When rates are high, competition decreases. After all, you’re not the only one who’s skittish about the higher rates. This in turn helps keep prices from escalating. So even though you may be taking out a mortgage at a higher rate, your may get in at a better base purchase price. Later, should rates come down, you can refinance, and lower your costs. But when rates come down, buyer interest increases, and prices go up. So even with a lower rate, your expenses may be higher.

Moreover, in the event that rates might actually continue to rise, locking in sooner protects your buying power. For example, if you purchase a home with a 7% mortgage, and rates climb to 7.25%, you’re still paying just 7%. The rate stays constant until you refinance, which you would obviously do when they are lower.

Additionally, you may find less competition in the new home construction market. Homeowners may be reluctant to sell and sacrifice their low mortgage rates, but home builders remain eager to close the deal. Plus, builders may be willing to offer other concessions like price reductions or temporary interest rate buydowns.

And if you’re a renter, remember that as homebuyer you are making an investment, netting some tax benefits, and ultimately building your own wealth.