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When Will Mortgage Rates Go Down? It’s Hard to Say, But Housing Experts Weigh In

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With mortgage interest rates in flux and trending upward after nearly two years of rock-bottom percentages, prospective homebuyers across the country are wondering when mortgage rates will go down again.

While no one can predict these kinds of things with absolute certainty, understanding how mortgage rates work — including the factors that drive these numbers in the first place — can lend valuable context clues. We’ll get into more details shortly, but it is safe to say that market activity is to blame (or thank!) for mortgage interest rates at any given time.

To help with our predictions of when mortgage rates will go down, we’ve researched the state of the housing market and spoken with two experts: Richie Helali of HomeLight Home Loans and Newport News, Virginia-based top real estate agent Leanne Hester. We’ll hear their insights as to what all of this means for buyers and why — spoiler alert — you should still go ahead and buy a home if you’re ready.

Mortgage rates in early 2022

We’re (somehow) more than halfway through 2022, which has given interest rates plenty of time to adjust as the world eases back into normalcy following the worst of the Covid-19 pandemic.

We started 2022 with an average rate of 3.22% on a 30-year fixed rate mortgage as of January 5th, saw a significant bump up to 4.67% as of March 30th, then rates scooted up to 5.81% by June 22. At the time of this writing in early August, they’re now sitting at an average of 5.22%.

Historically, rates are still pretty great — Helali recalls his father reminiscing about an 18% interest rate on his first home purchase in the late 1970s. However, 5.22% is nearly double the 2.77% mortgage rate we were at one year ago at the start of August 2021. You’re definitely not alone if you’re wondering which direction rates are likely to head next.

Why did mortgage rates rise?

Interest rates adjust based on how the overall market is doing. Are consumers spending money? Are they buying things, investing in businesses, or otherwise making large purchases?

When consumers slow their spending — as we saw happen at the onset of the Covid-19 pandemic — the Federal Reserve System takes action to entice people back into making decisions that will help stimulate the economy. Lowering interest rates on mortgages is one of these clever moves.

Conversely, when consumers have been spending too much money, or when demand has exceeded supply and folks are willing to pay more for goods than they usually would — as supply chains try to recover from shipping interruptions and labor loss — we run into the problem of inflation. And to combat inflation, the Fed steps in to raise interest rates to try to curb unfettered spending.

There’s more to mortgage rates than the Fed’s reactions to public spending habits, of course, but this is pretty much where it all starts. The International Monetary Fund has a great explainer on these market ups and downs if you’re up for some further reading.

How are housing market predictions made?

It’s probably no surprise that housing market predictions fluctuate based on what the greater economy is doing — but experts also make their calls by analyzing cold, hard data.

The National Association of Realtors® (NAR) reported in late July 2022 that “the housing market continues to show signs of cooling,” citing a consistent drop in home sales over the past five months. They have also shared that “home buying is now about 80% more expensive” as of June 2022 versus June 2019, pre-pandemic. Home prices have increased at a much faster rate than wages have, which means that many would-be buyers simply can’t afford to make a purchase right now.

For added context, this HomeLight article from February 2022 included an economist’s prediction that the housing market should cool by the mid and later parts of 2022 due to an unsustainable growth in home prices. Sure enough — and for better or worse — homebuying has slowed down.

So, when will mortgage rates go down?

Realistically, mortgage rates probably aren’t going to experience a significant drop anytime soon.

“This year has brought inflation, so rates had to go up. If this leads into recession, then rates are going to go down again,” says Helali. “Will they go down to the same levels we saw in 2020 and 2021? Probably not. Rates may not go that low again for the foreseeable future.”

Backing Helali’s prediction is the Mortgage Bankers Association, which forecasts interest rates in the mid- to high-4% range at least through 2024.

But if you’re feeling like you may have missed out by not scrambling for a new mortgage during the height of the pandemic — you haven’t. According to Helali, these higher rates are actually more helpful for everyone.

“What these rates are going to do is help everybody find a house,” he says, referring to how the market has been solidly in favor of sellers, with limited homes available because so many folks have been vying to buy. Higher mortgage rates will lead to fewer buyers competing for homes, and sellers won’t have as much leverage to command high prices or sell without making home repairs that prospective buyers might otherwise request as part of the deal. But this shift won’t mean that people stop buying homes, it just means there will be more balance in the real estate market.

“Regardless of market conditions, there are still going to be people who are looking to purchase,” Helali says.

Mortgage rates are affecting buyers, but I wouldn’t say that rates are keeping them from buying homes. I think the lack of inventory is keeping them from buying homes right now.
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    Leanne Hester
    Leanne Hester Real Estate Agent at Liz Moore and Associates LLC
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How are rising mortgage rates impacting buyers?

Hester’s current experience as a real estate agent confirms Helali’s sentiments — people are still buying houses.

“Mortgage rates are affecting buyers, but I wouldn’t say that rates are keeping them from buying homes. I think the lack of inventory is keeping them from buying homes right now,” she explains.

Particularly in the sub-$200,000 price range, Hester says buyers’ challenges have been with standing out among multiple offers.

“It’s really hard as a buyer to be competitive in this market — especially for first-time buyers who are up against investors with cash. That under-$200,000 market is super tough right now.”

But rather than quibbling over interest rates, Hester advises prospective buyers to find a creative agent who can help them put together an enticing offer. Sellers aren’t always driven by the sales price alone — including a rent-back opportunity or a quick closing date could be the difference between a seller saying “no thanks” and choosing to take a closer look.

Even with current market conditions, Hester doesn’t recommend that buyers try to wait out rising interest rates. She says she doesn’t anticipate rates dropping quickly, but acknowledges that mortgage rates might cause sellers to hold off on putting their homes on the market.

If this sounds like a recipe for continuing the cycle of more buyers than available homes, well, it’s a real possibility.

“Homeowners aren’t going to be refinancing as much as they were; they’re not going to be trying to replace their home and upgrade with these rates. So, I don’t see our inventory coming back right away,” Hester notes.

How are rising mortgage rates impacting sellers?

As Hester suggested, sellers who don’t absolutely have to sell their home — those who aren’t relocating for a new job or clamoring for space for a growing family — may be more inclined to take a “wait and see” approach.

But, as we heard from Helali, there will always be people who need to buy a home, which means there will also always be people who need to sell a home.

Hester encourages sellers to be realistic as the housing market moves forward. While buyers still may not have their pick from dozens of available homes, sellers won’t be able to keep up with the how-high-can-we-go mentality of the past two years.

“We’re still going to have buyers — I don’t think that’s going to be a problem — but sellers can’t get complacent right now and assume everything’s going to be fine,” she says.

In other words, sellers should understand that, for example, they might be asked to cover the cost of home repairs that a buyer may have been willing to overlook this time last year.

“Being a little flexible sometimes goes a long way,” says Hester.

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Your bottom line is the one that matters

At the end of the day, experts agree that if you’re otherwise ready to buy a home — meaning that the timing is right for both your lifestyle and your finances — then go for it. Today’s rising rates don’t have to sideline your purchase plans.

Waiting until mortgage rates go down only means that home values will have more time to rise, so the $250,000 home that fits your budget today could be out of your price range in another, say, eight or ten months.

“Anyone who’s buying a house today is guaranteeing their price,” says Helali. “In two to three years from now, we’ll start to expect to see rates coming down, and all of the people who are buying houses now will be in the market to refinance.” And at that point, we’ll see another boom.

“With real estate, what goes up eventually has to come down.”

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