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Wednesday, February 21, 2024

This is when mortgage interest rates will fall, experts say

Over the past year and half, the Fed has gradually increased interest rates by about 5%. While the hikes have helped to cool inflation, they’ve also driven up the cost of getting a mortgage. During the pandemic, Americans saw record-low mortgage rates in the ballpark of 3%. Now, they’ve plateaued around 7%. If you’re wondering how long they’ll stay there and if it’s a good time to buy a home, then it helps to know what some experts think.

Start by exploring your mortgage options here to see what rate you’re eligible for.

When do experts think mortgage rates will drop?

Experts tend to agree that mortgage rates will likely drop over the next year and hit 5% by the end of 2024 or the beginning of 2025.

5% by late 2024 or early 2025

“As the Fed continues to battle inflation and gets closer to their 2% goal, mortgage rates should respond positively to the stabilization and begin slowly decreasing in early 2024. My prediction is that we see rates around 6.5% in Q1 of 2024 and 5% in Q4,” says Brian Shahwan, vice president and mortgage banker at William Raveis Mortgage.

“Many mortgage rate forecasts from leading institutions don’t predict a drop to 6% or below until the end of 2024 or early 2025,” adds Christopher L. Stroup, MBA, CFP, a financial advisor at Abacus Wealth Partners.

Travis Saling, loan officer at Fairway Independent Mortgage Corporation agreed, saying, “The Fed increased rates to help slow inflation and it’s worked. My prediction would be [mortgage rates] moving into the low 6% range by the end of next year and into the 5% range by 2025.”

“I don’t think that we’re going to see lower mortgage rates until sometime next year – second half? When rates dip, I think they’ll be in the 6% to 6.5% range. Perhaps, a bit below 6%. But, I don’t anticipate rates getting to sub-5% any time soon,” says Kevin Leibowitz, president and CEO of Grayton Mortgage.

See what mortgage interest you’d qualify for here now.

A recession could drive a drop sooner

While the consensus is that rates will enter a steady but slow decline in the coming year or two, a recession could change that.

“As consumers begin facing the real effects of the Feds increased rate hikes over the past year in their credit card debts, auto debts, and newly re-introduced student loan payments, this may push the economy into a recession-which would rapidly decrease mortgage rates,” says Shahwan, “If CPI moves higher or the Fed continues raising the Fed Funds rate, the chances of a recession, in my opinion, are much greater.”

Saling also notes the possibility. He said, “[The Fed] is taking a wait-and-see approach to see if they need to raise rates higher. They could start to cut rates if the economy starts to falter because of the higher rates.”

Should you wait to buy a new home?

While rates will likely drop slightly in 2024, that doesn’t necessarily mean you should wait to buy a home.

Buying when rates are on the higher end can mean lower home prices and fewer bidding wars. It can also be beneficial to start building equity and reaping tax benefits as soon as possible.

“Regardless of where mortgage rates go from here, there is one piece of advice I always deliver to my clients in the home buying process: You marry the house, but date the rate,” says Stroup. “If you choose to implement this strategy, you assume today’s interest rates as a necessary evil. Then, you plan to refinance your mortgage at some point in the future once rates fall.”

How to track mortgage rates

Want to keep an eye on mortgage rates in the year to come? Leibowitz says to check the Federal Reserve Economic Database.

He adds, “Typically, rates in the market don’t drop until there’s some bad news (recession, higher unemployment, deflation, etc.). We haven’t seen any of these items occur. There’s talk of a ‘soft landing,’ but these are difficult to engineer. The members of the Fed know this, so I believe that they’re not in any hurry to reduce rates.”

Explore today’s mortgage rates now to learn more.

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