When will mortgage rates go down? Experts reveal how long you need to wait to buy a house

Mortgage rates in the US have risen dramatically in recent years, with 30-year rates at the highest in more than two decades.

Due to inflation, the Federal Reserve has raised interest rates to reduce spending, while mortgage rates have risen along with it.

From 2022 to 2023, the Central Bank increased its Fed Funds rate (the rate at which banks borrow money from each other) eleven times, taking it from zero percent to 5.25-5.50 percent. Yahoo Finance reported.

Today, the average monthly mortgage rate for a new home is $2,256, about seven percent higher than last year, according to Association of Mortgage Bankers.

While it is unclear exactly when mortgage rates will fall, two mortgage companies, Fannie Mae and Mortgage Bankers Association, have predicted that high prices could gradually fall by the end of 2025.

Two mortgage companies, Fannie Mae and Mortgage Bankers Association, have predicted that high prices could gradually fall by the end of 2025.

High interest rates in today’s economy have created caution among homeowners looking to sell and buyers looking to purchase a new home.

“Affordability for homebuyers continued to decline as mortgage rates remained above 7 percent in April, preventing many potential buyers from entering the housing market,” said Edward Seiler, vice president of the Mortgage Bankers Association.

“In addition to lower mortgage rates, more housing inventory is urgently needed in markets across the country this summer to alleviate these difficult affordability conditions.”

From the third quarter – from July to September this year – the 30-year mortgage rate is estimated at 7.1 percent, but by the fourth quarter of next year – from October to December – the interest rate will drop to 6. 6 percent, according to Fannie Mae.

The Mortgage Bankers Association revealed that 30-year mortgage rates are expected to reach 6.7 percent in the third quarter of 2024 and fall to 5.9 percent by the end of 2025.

Experts have warned that the only way for mortgage rates to fall is for inflation costs to also fall.

“To see rates improve, we need to see inflation rates fall, new job creation slow and possibly unemployment claims increase,” said Evan Luchaco, home loan specialist at Churchill Mortgage.

High interest rates have created caution among homeowners looking to sell and buyers looking to purchase a new home in today’s economy.

Luchaco thinks that costs could drop at the end of this year, but he is not entirely positive.

“These are all economic signs of a slowdown that will prompt the Fed to take action in lowering the fed funds rate, which will have a trickle-down effect on lowering mortgage rates,” he said.

Jennifer Beeston, senior vice president of guaranteed rate mortgage lending, also believes that the only way mortgages will go down is if inflation goes down with it.

“In order to cut rates, we need to see inflation come down,” Beeston told Yahoo Finance.

‘Based on current economic forecasts, this looks like a possible decline; But all the predictions of the past two years have been wrong.’

Although rates are expected to decline in the coming year, experts do not believe they will reach the three or four percent levels seen during the COVID-19 pandemic.

Neil Christiansen, home loan specialist at Churchill Mortgage, believes mortgage rates will only fall if America enters a “deep recession.”

“If the Fed sees the economy slowing down and coming to a standstill, they can cut rates dramatically to boost the economy, but the way things are going right now, I don’t foresee a significant rate cut in the near term,” Christiansen said.

Experts have warned that the only way for mortgage rates to fall is for inflation costs to also fall

With mortgage rate uncertainty looming, Beeston has suggested both buyers and sellers need to crunch numbers to determine when to get into the market.

“For people who are waiting for rates to drop, I often show the payment now versus one percent lower,” she said.

“The impact of a rate drop on your payment is much more dramatic on a $1 million purchase than on a $100,000 purchase.”

Luchaco has warned that while mortgage rates could fall, house prices are not expected to fall.

He added that if many people enter the market because of the possible lower rates, demand will push up home prices.

For people currently renting, experts have suggested that if you can qualify for a mortgage rate and find a payment you can afford, you should consider entering the market.

Buying a home earlier can also give people the opportunity to refinance later if interest rates drop.

“Home prices continue to rise 5% to 6% year over year, and with the loss of appreciation and loan repayments, the longer the buyer waits, the more they lose the opportunity to improve their wealth,” Christiansen said.

By looking for an “assumable mortgage,” buyers can find a home with an existing fixed low interest rate and have the mortgage transferred into their name, sometimes saving them thousands of dollars per month.

A little-known tactic can help keep costs down and make ownership more affordable.

By shopping around for an “assumable mortgage,” buyers can find a home with an existing fixed low interest rate and have the mortgage transferred into their name, sometimes saving thousands of dollars per month.

An estimated 23 percent of active mortgages are in forbearance, but not all buyers are qualified to take on one, according to data firm Intercontinental Exchange.

Real estate search companies are starting to tag homes with presumptive mortgages and many of them have rates as low as two percent, less than half the current average of 7.09 percent on 30-year loans.