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https://money.usnews.com/loans/mortgages/mortgage-rate-forecast

Mortgage Rate Forecast: When Will Rates Go Down?

-Why Mortgage Rates Are Expected to Stay High-

Stubbornly 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.

“For real estate markets, the Federal Reserve’s decision translates into elevated borrowing costs through the remainder of 2023,” says George Ratiu, chief economist at Keeping Current Matters, a real estate market insights company.

In its latest projections materials, the Federal Open Market Committee – the committee within the Fed that sets monetary policy – expects the benchmark rate to end the year at 5.6%. The current rate is between 5.25% and 5.5%, and Fed officials have suggested that another rate hike this year isn’t necessarily off the table.

That being said, it’s not guaranteed that the FOMC will raise rates again before the year is out. It’s all dependent on incoming economic data on inflation and employment. If the economy continues to show unexpected strength, another rate hike may be necessary; but a slowdown in hiring or price growth may give Fed policymakers reason to pause.

Another contributing factor to today's high mortgage rates is the abnormally large spread between the 30-year fixed mortgage rate and the yield on 10-year Treasury bonds. That spread is historically around 1.7 percentage points, but it’s currently closer to 3 percentage points due to high levels of volatility on the investor side.

The wide mortgage rate spread comes at a time when 10-year Treasury yields are already expected to stay elevated. In an Aug. 16 statement, Redfin economist Chen Zhao says investors worry that the federal government has taken on too much debt: "The concern is that the U.S. Treasury could issue too much in new treasuries to finance this debt, which would bring down the value of treasury debt and increase bond yields (or interest rates)."

At the same time, the wide spread could provide a buffer if Treasury yields keep rising. Zhao says that the spread might narrow if mortgage rates come down, which could happen if banks resume purchasing mortgage debt.

Higher “mortgage rates change the trade-up calculation for existing homeowners and are keeping as many as 1-in-7 out of the market because they don’t want to give up their existing low rate. As a result, I expect the number of homes for sale to decline this year and continue to be a damper on home sales. Limited inventory is also keeping prices high even though housing affordability has deteriorated significantly in the past three years.” – Danielle Hale, Chief Economist at Realtor.com

Home Prices Will Stay High Amid Tight Housing Inventory

“Real estate markets are traversing the summer season with most buyers struggling to find enough homes for sale. The imbalance between supply and demand has been pushing prices up and bringing back market competition, especially in more affordable metro areas. Tight inventory is leading to a modest pace of sales for existing homes.” – George Ratiu, Chief Economist at Keeping Current Matters

New Construction Will Have an Edge Over Existing-Home Sales

“Low resale inventory continues to be a boon for single-family construction, which now appears to be advancing at a modest pace. However, high interest rates and slower economic growth are likely to put a ceiling on single-family activity and weigh on multifamily construction, home improvement spending and brokers' commissions over the forecast horizon.” – The Economics Group of Wells Fargo Bank

Unpredictable Conditions Will Stifle Homebuying Activity

"Higher and volatile interest rates, uncertainty about property values, and questions about some property fundamentals have led to an impasse in property sales and mortgage originations activity this year ... If interest rates and cap rates fall, as we anticipate, that should help boost values and promote borrowing. If they remain higher for longer, that will suppress activity. The uncertainty about future interest rate paths is a contributing factor to today’s slowdown.” – Jamie Woodwell, MBA’s Head of Commercial Real Estate Research

Buyers and Sellers Will (Eventually) Adapt to Higher Rates

"We expect mortgage rates may notch down slightly as inflation comes under control, but they are unlikely to return to 5% in the near future. That means many homeowners will move only for major life events, like a new baby or retirement. Over time, homeowners will likely accept higher rates as the new normal, but until then, the market could remain challenging for home shoppers, who will see fewer options and higher prices." – Orphe Divounguy, Senior Economist at Zillow Home Loans

-Advice for Buying or Selling a Home in 2023 and Beyond-

The bottom line is that mortgage rates are expected to stay elevated for at least the next couple of months, which has implications for prospective homebuyers and sellers. But regardless of current mortgage rate trends, Americans will still have a motivation to move, whether they want to downsize in retirement or need to relocate for a better job.

Here’s what you should consider if you’re planning on buying or selling a home in the near future.What Buyers Should Know: Patience Doesn’t Always Pay Off

With stubbornly high home prices and 7% mortgage rates, many homebuyers understandably feel priced out of the current market. Two-thirds of prospective homebuyers are waiting for rates to fall before buying a home, according to a spring 2023 U.S. News survey.

At the time the survey was conducted in March, the Freddie Mac 30-year fixed mortgage rate was around 6.5%; but it’s been five months since then, and rates have actually risen past 7%. To make matters worse, the median existing-home sales price rose from $375,400 in March to $410,000 in June, NAR reports. Suffice it to say, homebuying conditions did not improve for those who chose to wait.

Even if mortgage rates do fall, every slight drop brings with it a rise in homebuyer demand. That’s evidenced by MBA’s Weekly Applications Survey, which finds a meaningful uptick in mortgage purchase applications during weeks when rates are lower.

While mortgage rates can influence market conditions in the immediate term, there’s still a seasonality to home sales trends. Housing activity tends to pick up in the spring and summer months, losing steam in the fall and winter. Mortgage rates are still likely to pull back somewhat by the end of the year, and home sales prices tend to be lower during the off-season.

“For buyers who are not in a hurry, the fall and winter months could bring better values and a less competitive environment to find the right home,” Ratiu says.

Additionally, buyers 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. Although new construction homes are typically more expensive than resale homes, builders may be willing to offer other concessions like price reductions or temporary interest rate buydowns.

What Sellers Should Know: Remember That You’re a Buyer, Too

Perhaps the biggest hurdle facing sellers is that they still need a place to live once they’ve sold their current home. For many, that means buying a new home at today’s rates and home prices. A recent Redfin study found that 92% of homeowners with a mortgage have a rate below 6%, and nearly a quarter (24%) have a rate below 3%.

“Mortgage rates probably won’t drop below 6% before the end of the year, and most homeowners wouldn’t be motivated to sell unless rates dropped further,” says Taylor Marr, Redfin’s deputy chief economist, in the report. “Some of them simply don’t want to take on a 6%-plus mortgage rate and some can’t afford to.”

But demand still exceeds supply in this seller’s market. The active listing count, or the number of homes listed for sale that aren’t pending, was down 7.9% annually in August, according to Realtor.com data. That’s after for-sale housing inventory was already at historically low levels this time last year.

Because it’s a seller’s market, home sales prices have stayed elevated despite the fact that buyers are grappling with 7% rates. Of course, this will vary from one region to the next, but in traditionally more affordable markets, competition remains high.

There is another silver lining for sellers who are also buyers: Most homeowners who have been at their current home for at least a few years are sitting on a mountain of equity thanks to double-digit home price appreciation seen during that time. With a successful sale, homeowners can tap into that equity to put toward their next home purchase.

-Mortgage Rates By Mortgage Type--Compare Mortgage Rates-

Today’s 30-Year Mortgage Rates

Today’s 15 Year Mortgage Rates

Today’s FHA Mortgage Rates

Current VA Mortgage Rates

Current Refinance Rates

Current Jumbo Mortgage Rates

Current 30-Year Mortgage Refinance Rates

Current 15-Year Mortgage Refinance Rates

What This Means for Mortgage Refinancing Rates

The forecast for mortgage refinance rates is pretty much the same as the forecast for mortgage purchase rates: They’re likely to stay elevated for longer than previously thought. Since the vast majority of homeowners have a lower rate than what’s currently available, it doesn’t really make sense to try to refinance to a lower rate right now.

Still, it’s possible to refinance if your goal isn’t just to get a lower rate. With rate-and-term refinancing, you can switch to a shorter repayment period, like a 15-year mortgage. Doing so can help you pay off your mortgage faster and save money in the long run, since you’ll be making fewer interest payments to the lender. Of course, if your new rate is much higher, it may not be worthwhile in the long term, and your monthly payments may be significantly more expensive in the short term.

Others may want to refinance as a way to switch from an adjustable-rate mortgage, or ARM, to a fixed-rate mortgage. Refinancing to a fixed rate can help shield you from higher monthly payments when the rate adjusts, which can make it easier to budget for your housing costs. However, fixed rates are generally higher than adjustable rates, so it may be difficult to justify a refinance unless your ARM rate is slated to increase meaningfully.

Additionally, some homeowners may want to refinance to access their home’s equity. A cash-out refinance is when you borrow a mortgage that’s larger than what you currently owe, allowing you to pocket your home’s equity in cash. This might be possible if your home’s value has risen dramatically or you’ve paid down your mortgage significantly over the past few years. But keep in mind that you’ll be taking on a larger loan amount and more debt, paying more money toward interest over time. Plus, you’ll still be stuck with a higher rate.