Expert Forecasts Suggest Mortgage Rates Unlikely to Dip in the Current Year

With mortgage rates at the highest levels in over two decades, many Americans are curious about when borrowing costs will start to decline. Currently, the answer remains unclear, although some analysts believe that rates for home loans have likely reached their peak.

The path for mortgages, as always, depends on the Federal Reserve’s plans for its benchmark short-term lending rate. Fortunately, there is more certainty on that front: Wall Street investors overwhelmingly expect policy makers to keep rates unchanged in their upcoming economic assessment.

According to Freddie Mac data, the rate for a 30-year fixed-rate mortgage currently stands at 7.18%, while a 15-year loan has a rate of 6.51%. These rates, combined with higher home prices, have made it increasingly difficult for the average American to afford a house.

It’s important to note that mortgage rates don’t always exactly mirror the Fed’s rate increases. Instead, they tend to align with the yield on the 10-year U.S. Treasury note. Factors such as investors’ expectations for future inflation, global demand for Treasurys, and Fed policy can also influence home loan rates.

For most Americans, finding an affordable home is a significant challenge. Residential real estate prices have continued to rise this year due to limited property inventory. Many homeowners who secured lower interest rates during the pandemic have chosen not to sell their homes out of fear of having to buy another property at today’s elevated rates.

“It’s always incredibly difficult to predict mortgage rate movements, but there is no clear reason to expect a significant drop in the near future,” stated Nicole Bachaud, senior economist at Zillow, in an interview with CBS MoneyWatch.

Based on recent data from the National Association of Realtors, the median sales price for existing homes rose by 1.9% in July to $406,700 compared to the previous year. Since January 2020, prior to the pandemic, the median sales price for existing homes has increased by 57% to $266,300.

For homebuyers, even a small percentage point change in mortgage rates can have a significant impact. According to Jacob Channel, a senior economist at LendingTree, a $350,000 home loan issued at a rate of 6.02% would result in a monthly payment of $2,103. However, at the current rate of 7.18%, that monthly payment would rise to $2,371.

“That’s an additional $268 per month, $3,216 per year, and $96,480 over the 30-year lifetime of the loan,” he explained.

Despite this, some Wall Street analysts believe that mortgage rates may have already reached their peak and predict that policy makers will lower the benchmark rate in the first half of 2024. In the meantime, homebuyers applying for a mortgage throughout the remainder of the year should expect rates just slightly over 7%, according to Channel.

“They likely won’t return to their pandemic era lows anytime soon, if ever, but it’s certainly not out of the question for rates to eventually trend back under 6% in 2024 or 2025,” Channel added.