Since late 2022, mortgage rates have jumped to between 6% and 7% — and in fall 2023, they nearly eclipsed 8%, marking the highest 30-year mortgage rate seen in over two decades.
Combined with rising home prices, higher rates have sent mortgage payments soaring. According to the Mortgage Bankers Association, the median monthly mortgage payment on new home purchases is now $2,219 — up 2.5% from a year ago. The increase has sidelined many home buyers and deterred existing homeowners from selling (about 9 in 10 have current rates under 6% and may not want to let go of that lower rate).
It raises the question: Just how long can these higher rates last? And when, if at all, can consumers expect mortgage rates to go down enough for monthly payments to become a little more manageable? Here’s what we know.
Learn more: First-time home buyer in 2024 — What you need to know
In this article:
When will mortgage rates go down?
Mortgage rate predictions
Should you wait for lower rates to buy a house?
How to get a lower mortgage rate
FAQs
When will mortgage rates go down?
To gauge when mortgage rates will go down, it’s important to understand why they increased in the first place.
For the most part, it has to do with inflation. As inflation rose, the Federal Reserve pushed up its interest rates to tamp down spending. The central bank increased its benchmark federal funds rate — the rate at which banks borrow money from each other — 11 times throughout 2022 and 2023, raising it from nearly 0% to the range of 5.25% to 5.50%, where it sits today. Mortgage rates aren’t directly tied to the Fed rate, but when it rises, mortgage rates tend to increase too.
While the Fed’s moves have largely been successful at lowering inflation, it hasn’t been enough. The May 2024 inflation rate came in at 3.3% year over year — well above the central bank’s 2% goal. As a result, the Fed has been keeping its higher interest rates in hopes of lowering inflation even further.
And those higher-for-longer rates are keeping current mortgage rates up too. Until the Fed decides inflation is under control and starts to reduce its benchmark rate, mortgage interest rates are likely to remain high, experts say.
“In order to see rates improve, we need to see inflation numbers decreasing, new job creations slow down, and potentially unemployment filings to increase,” said Evan Luchaco, a home loan specialist at Churchill Mortgage in Portland, Ore., via email. “These are all economic signs of a slowdown that will spur the Fed to take action in lowering the Fed funds rate, which will have a trickle-down effect to lower mortgage rates.”
Luchaco expected this could start happening toward the end of the year, though that’s not set in stone. Currently, the CME FedWatch Tool, which uses investing activity to predict future Fed moves, shows a small rate cut is possible at the bank’s September meeting — but we may only see one rate cut this year.
“In order for rates to come down, we need to see inflation ease,” said Jennifer Beeston, senior vice president of mortgage lending at Guaranteed Rate, via email. “Based on current economic predictors, that looks like potentially fall; however, all the predictions have been wrong for the last two years.”
Learn more: Should you lock in your mortgage rate — and if so, when?
Mortgage rate predictions
No crystal ball will tell us when rates will drop, and rate predictions largely depend on who you ask.
Here’s a look at where two major industry players project mortgage rates will be over the next couple of years:
As you can see, both predict rates will drop over the coming year or two, but very gradually. Experts also don’t expect any drastic dips in rates — say to 3% or 4%, as experienced during the height of the COVID-19 pandemic.
“A significant drop in rates would only happen if the U.S. went into a deep recession,” said Neil Christiansen, a home loan specialist at Churchill Mortgage in Denver, in an email. “If the Fed sees the economy slowing and stalling, then they could cut rates drastically to jump-start it, but the way things are going, I don’t see a significant cut in rates anytime soon.”
Should you wait for lower mortgage rates to buy a house?
Rates are likely to fall over the next couple of years, but not by a huge amount. So, is it worth it to hold out for lower rates? The answer is different for everyone, but to start, run the numbers.
“For people waiting for rates to come down, I often show the payment now versus a percent lower,” Beeston said. “They are often shocked by how little the difference is. The impact of a rate drop on your payment is far more dramatic at a $1 million purchase than a $100,000 one.”
Below is an example of what a rate drop may mean for your payment toward a mortgage principal and interest on a $250,000, $500,000, or $1 million mortgage.
Read more: How much is a mortgage on a $500,000 house?
Beyond this, you should also think about housing market conditions. Though lower mortgage rates could shave a little off your monthly payment, there may be more competition for properties when rates fall. This could cause home prices to increase and result in bidding wars (which also drive up prices).
As Luchaco explained, “Home prices aren’t likely to come down in any significant way, and while rates may decline, this will likely only lead to more people getting into the market and creating greater demand for housing — pushing home prices up all over again.”
That’s why most experts recommend buying a home when the time — and numbers — work for you. If you need to get out of the rent race and can qualify for a rate and payment you can afford, pull the trigger, experts say. You can plan to refinance if rates drop later on.
“From where I sit, the cost of waiting will continue to hurt the buyer, even in today’s rate environment,” Christiansen said. “Home prices continue to increase at 5% to 6% year over year, and with the loss in appreciation and loan pay-down, the longer the buyer waits, the more they lose the opportunity to improve their net worth.”
If you buy sooner rather than later, you have a chance to start building home equity.
Dig deeper: When will the housing market crash again?
How to get a lower mortgage rate
While average 30-year fixed mortgage rates sit around 7% right now, the exact rate you’ll get on a mortgage depends on many factors, like your loan amount, credit score, mortgage lender, and more.
To ensure you’re getting the best mortgage rate possible, compare mortgage lenders. Get a Loan Estimate from each, and see how rates and fees measure up. According to Freddie Mac, shopping around can save you between $600 and $1,200 per year.
You can also work on improving your credit score since borrowers with higher scores tend to get lower interest rates.
Finally, consider an interest rate buydown. When you buy down your rate, you either permanently or temporarily lower your interest rate in exchange for an up-front fee on closing day. Talk to your mortgage loan officer if you’re interested in this strategy.
Learn more: 5 strategies to get the lowest mortgage rates
Mortgage rate prediction FAQs
Will mortgage rates go down in 2024?
Mortgage rates could fall in 2024, but that’s not a given. The Mortgage Bankers Association projects a 6.6% rate by the end of the year, while Fannie Mae predicts 2024 will end with rates at 6.7%.
Will mortgage rates ever go down to 3% again?
Mortgage rates have only ever been at 3% or lower in extreme times, specifically during the peak of the COVID-19 pandemic. Economic conditions would need to deteriorate significantly for rates to fall that low again.
What will mortgage rates look like in five years?
There are no sources for officially projected interest rates in five years, but the Mortgage Bankers Association does predict rates on 30-year mortgages will drop to 6% by the end of 2025. Fannie Mae predicts a 6.3% rate.
Are mortgage rates going down?
Mortgage rates are not currently moving downward, at least not significantly. The average rate on 30-year loans has held steady in the 6% to 7% range for most of the last two years.
This article was edited by Laura Grace Tarpley
