When Will Mortgage Rates Finally Come Down? 5 Signs to Watch For
To combat inflation, the Federal Reserve hiked interest rates from 0% to 5.25-5.5% between March 2022 and July 2023. Now that the rates are finally coming down, many are wondering when the mortgage rates will, too.
As of November 2024, the national average mortgage rate for a 30-year fixed term is 6.90%. That’s a far cry from the 3% they were during the pandemic. But 3% isn’t normal. In fact, it’s quite a rare occurrence that only takes place during extreme events. Yet, experts predict the rates should drop, even if not dramatically.
So when will this happen? Here are some elements financial experts say to watch closely.
1. More Federal Interest Rate Cuts
The Fed cut interest rates in September and November, decreasing it from 5.25-5.5% to 4.75-5%. That hasn’t directly impacted mortgage rates, but that’s normal.
The mortgage rates are more strongly tied to treasury bond yields, rather than the Fed’s hikes or cuts.
2. Economic Conditions
The times we see mortgage rates fall tend to be when the economy is slowing. Right now, the economy is strong and it’s not slowing as much as experts like Fed Governor Christopher Waller predicted.
Because of this, the Fed is likely to cut interest at a slower pace and that will result in steady mortgage rates.
3. Supply and Demand
Mortgage rates tend to be more favorable when there’s a large supply of houses. Right now, the demand is up and supply is down because people snatched up their homes at low rates over the past few years.
If those who purchased in 2020 or 2021 were to buy now, they’d end up with higher interest rates, so they’re choosing to remain locked in.
4. Investments
When things are going good economically, investors tend to invest more. This has a direct impact on bond yields, which often, in turn, affect mortgage rates.
The higher the yield, the higher the mortgage rates, typically. Keeping an eye on what investors are doing, by staying educated and up-to-date on market news, can give a clue as to whether interest rates will drop or rise.
5. Inflation
Inflation is the number one driver of the federal interest rate. When it starts to spike, the Fed will increase rates and when it levels out, the Fed issues cuts.
Inflation can be somewhat unpredictable, such as in 2021 after the economy started rebounding from the pandemic, but there are clues in the costs of your everyday items from gas to groceries and beyond.
Do You Need to Wait for Mortgage Rates to Drop?
While it can be tempting to wait until you can lock in a lower rate, it’s best to actually purchase a home when you find one you like. Here’s why. If rates drop in the future, you can typically refinance your home and lock in at the lower amount.
However, if you decide to wait it out and rates increase, there’s no telling when they will come down and you may be out of luck. It’s best to buy a home when it’s ideal for you, regardless of the rates.
