The good news: The wait for lower rates may soon be over. The not-so-good news: Rates probably won't go back to the historic lows we saw in 2020 and 2021. And once rates fall, homebuyers will likely have other challenges to contend with, including increased competition and rising home prices.
Why are mortgage rates so high?
Like other consumer rates, mortgage rates are impacted in large part by what's going on in the economy. Rates climbed in 2022 in response to rising inflation. To try to quell rising prices, the Federal Reserve started hiking the federal funds rate, which has also kept mortgage rates elevated.
But inflation has slowed significantly since it peaked in June 2022, when prices had risen 9.1% year over year, according to the Bureau of Labor Statistics. In August 2023, the Consumer Price Index was at 3.7%.
The Fed's goal is to get inflation down to an annual rate of 2%, so it's likely to keep the federal funds rate elevated for the near future. We may even see another rate hike before the end of the year. This will likely keep mortgage rates from falling substantially.
"Bond market behavior suggests that rates are likely to remain elevated through the rest of the year, despite the last several inflation reports showing signs of cooling," says Afifa Saburi, capital markets analyst for Veterans United Home Loans. "The services segment of inflation is proving to be sticky and the wages component of the labor market remains solid – all of which points to holding interest rates at higher levels longer until slower growth no longer calls for aggressive monetary policy."
But as inflation gets closer to the Fed's target, we could start to see rates trend down in 2024.
Mortgage rate predictions 2024
Most major forecasts expect rates to fall in 2024. But exactly when will mortgage rates go down? Here's how a few of the leading players stack up in their predictions:
| Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | |
| Mortgage Bankers Association | 5.9% | 5.6% | 5.3% | 5.0% |
| Fannie Mae | 6.5% | 6.3% | 6.2% | 6.0% |
| National Association of REALTOR® | 6.1% | 6.0% | 6.0% | 6.0% |
Fannie Mae's forecast suggests that 30-year mortgage rates will fall into the 6% to 6.5% range in 2023, while NAR believes rates will stick closer to 6%. The MBA forecast sees rates falling more aggressively, predicting that 30-year mortgage rates will drop to 5% by the end of 2024.
While there's some dispute on exactly how much rates will go down, the general consensus is that mortgage rates should finally drop back below 7% in 2024.
When will mortgage rates go down to 3%?
It's possible that rates will one day go back down to 3%, though if current trends hold that's not likely to happen anytime soon.
Think about the reason why rates went so low in the first place: In response to the COVID-19 pandemic, the Fed cut the federal funds rate to near zero and purchased a large number of mortgage-backed securities to stave off an economic crisis. This allowed mortgage rates to drop as low as they did, with 30-year mortgage rates reaching an all-time low of 2.65% in January 2021, according to Freddie Mac.
