Prospective home buyers, real estate investors, and other industry professionals all watch mortgage rates very closely. Favorable mortgage rates incentivize purchases, which bears a host of effects on the market. Predicting fluctuation of mortgage rates is no simple matter, but are there any strategies that could allow you to anticipate how mortgage rates are going to change in the near future?
The Current State of Mortgage Rates
Mortgage rates are currently in the 6 to 7 percent range, far above the ultra‑low levels some of us saw in recent years, but still reasonable in the grand scheme of things. As a result, you’re probably wondering: Will they drop soon? Or are we stuck in a mid- to high-rate world for the foreseeable future?
What’s Driving Mortgage Rates Now?
Mortgage rates don’t exist in a bubble. They closely follow broader economic forces, including, but not limited to:
- Federal Reserve policy. The most significant factor in determining mortgage interest rates is the recent policies of the Federal Reserve. When the Fed keeps its benchmark rates high (or signals no imminent cuts), mortgage rates trudge higher too. The Fed has nearly unilateral control over how interest rates are set and how they change over time, and this institution monitors economic data closely to choose the best rate for sustainable, low-risk economic growth. As of the time of this article’s writing, markets heavily favor the Fed holding rates steady. In times of economic turmoil, the Fed often cuts rates, sending mortgage rates plummeting. In times of high inflation and runaway growth, the Fed does the inverse, increasing rates to maintain control.
- Bond yields. The 10-year Treasury yield and mortgage rates move in tandem. A downward bump in Treasuries can translate into slightly lower mortgage rates and vice versa.
- Inflation trends. Persistent inflation can be a cause to keep interest rates relatively high. Conversely, when inflation begins to wane, interest rates are more likely to drop.
- Housing supply and demand. The available inventory of homes can also have complex interactions with mortgage rate trends. When inventory is limited, people are generally willing to pay more for a house, though high interest rates can pull back on this effect. The opposite is true when inventory is abundant, driving prices down unless rates are lower.
- General economics. Depending on the economic landscape, banks may be willing to take more or fewer risks. For example, when financial institutions feel uncertain or pessimistic, they may be less willing to extend loans – or enact tougher requirements for securing them.
What the Experts Predict Short-Term
Current opinions from top economic experts suggest mortgage rates will stay elevated, with general easing over the next several years. Depending on who you consult, you may hear predictions that rates will rise, fall, or stay the same. That’s partially because predicting the future of mortgage rates is incredibly difficult, even with a ton of data available. Even the best economic experts aren’t reliable at predicting the future; if they were, it would be a lot easier to time your investing decisions.
Accordingly, you shouldn’t blindly or fully trust experts – and you should temper your expectations when it comes to your own predictions.
Why Rates Likely Won’t Plummet Soon
That said, several factors suggest mortgage rates won’t rapidly fall. For example, officials are generally cautious about lowering policy rates before inflation is consistently at or below target levels. The bond market is still somewhat volatile. And despite the existence of higher interest rates, home values are still trending upward nationally, meaning affordability pressures persist for the average buyer.
Combining this with expert predictions, it seems unlikely that interest rates will fall sharply anytime soon.
What This Means for Your Timing Strategy
If mortgage rates are unlikely to leap significantly lower soon, what should you do?
- Take inventory. Your personal finances should be your biggest consideration when determining when and how to buy a home.
- Do your due diligence. Always do your research before making a homebuying decision, including researching local markets, economic trends, and mortgage options.
- Plan for the long term. If you plan your investments with the long term in mind, short-term changes aren’t going to disrupt your strategy.
- Avoid focusing too much on timing. Timing the market is challenging, if not impossible, even for the most seasoned investors.
The Big Picture
Mortgage rates have climbed, but they’re no longer spiking, and most forecasts suggest only mild declines through the end of year. After that, it’s anyone’s guess how interest rates might change. If you’re in a stable financial position and find a property you love, waiting for the perfect rate could cost more than buying now, but ultimately, your decision depends on your personal financial circumstances.
