When will mortgage interest rates drop? Here’s what the experts think

The Federal Reserve’s 10th straight rate hike is weighing on the housing market, with existing home sales falling 3.4% in April. National Association of Realtors. Over the past year, home sales fell 23.2%, while home prices fell 1.7% to a median price of $388,800.

High interest rates are making it more challenging for potential home buyers to purchase their dream home and for homeowners to refinance. For the latter, high interest rates make it difficult for homeowners to refinance their existing mortgage at a lower rate. Many homeowners refinanced their homes during the pandemic when interest rates were at record lows of 0% to 0.25%. In contrast, the Fed’s most recent 0.25% rate hike brought the benchmark range from 5% to 5.25%, the highest level in 16 years.

When mortgage rates will reverse is anyone’s guess, but we asked the experts to weigh in. Understanding where interest rates are going can help home buyers and homeowners better understand the options available to them.

Explore your refinancing options here now and find out what rate you qualify for.

When will mortgage interest rates drop?

When the Federal Reserve raised interest rates in May, the Federal Open Markets Committee deleted a reference to “future hikes” that had appeared in previous statements, leading to speculation that Interest rate hikes may be nearing a halt. Along these lines, organizations such as Fannie Mae and the Mortgage Bankers Association forecast that the average 30-year fixed-rate mortgage rate will decline throughout 2023, continuing through the first quarter of 2024.

“The Fed recently signaled that it may rule out a rate hike at its next meeting while it assesses the impact of its recent hikes on inflation, but markets still expect the Fed to continue raising rates later this year,” said Peter Idziak, Polunsky Beitel Green. A senior associate. “However, if the Fed stops hiking because data shows the economy is weakening and inflation is coming down further, then I would expect mortgage rates to decline in the second half of 2023.”

Mark Fleming, chief economist at First American Financial Corporation, said interest rate cuts may not happen for months. “Probably in 2024, but that will depend on the Fed’s decision to raise rates in the second half of the year,” Fleming said. “And if they go down, it’s not going to go back to the rate it was back in the day. 6% mortgage rates were normal, and that’s more reasonable to expect.”

Adam Sharif, founder and chief strategist at nxtCRE—a platform for commercial real estate investors—agrees. He added, “If rates go down, it will be next year and not by much. Today’s interest rates are considered normal by historical standards.”

Not sure if you qualify for a mortgage rate? You can now easily find here.

Is now the right time to buy a home?

While rising interest rates put many home buyers at a disadvantage, they can still present a good opportunity to buy a home for others, especially investors. If you want to hold onto a property as a long-term investment, the home’s value can increase significantly over time, potentially outweighing the cost of higher interest rates. And if you expect interest rates to drop, you may have the opportunity to refinance your mortgage at a lower rate in the future.

“There’s some truth to the saying ‘marry at home, but don’t give up,'” adds Idziak. “Home inventory is still very limited in many cases, so a potential buyer who finds a home he likes might be better served by buying now.” Even with rate hikes and expect to refinance in two to three years when rates may be lower.”

Likewise, in some circumstances, it may mean buying a property Purpose of hireEven in a high-interest environment. Depending on rental rates in your area, among other factors, your rental income may offset a portion, if not all, of your mortgage costs. Additionally, you may be able to Benefit of tax benefits Own a rental property.

Is it a good idea to refinance my mortgage?

A mortgage refinance Meaning you are replacing your existing home loan with a new one, ideally at a lower interest rate. With rates nearly doubling in 2020, refinancing may not be the best option for those who took out their existing mortgages before the Fed begins its aggressive rate hike schedule.

“For borrowers who refinanced at historically low rates from 2020 to 2022, it may not make sense to refinance in the current rate environment,” said Idziak. “However, borrowers who have taken advantage of home value appreciation over the past few years may still find it advantageous to refinance to tap home equity or remove private mortgage insurance.”

which are in other situations Refinancing can prove beneficialFor example:

• If you want to pay off your mortgage loan early. Refinancing your home loan from a 30-year to a 15-year term can result in potential overall cost savings, despite the higher interest rates. Remember, shorter loan terms have lower interest rates than longer term mortgages.
• If you want to convert to an adjustable-rate mortgage (ARM). Homeowners with adjustable rate mortgages (ARMs) who face the possibility of fluctuating monthly payments may consider converting to a fixed rate mortgage.
• If you want a lower interest rate. Again, this may not be an option for many homeowners. Still, some homeowners may have a higher interest rate on their existing mortgage than lenders are currently offering. For example, they could secure their mortgage when rates were higher, or possibly lower Credit score Their loan turned into a high-interest mortgage at the time of application.

Explore your mortgage refinancing options here to see if it makes sense to work.

Bottom line

Watching interest rate trends can help home buyers and homeowners better understand the market so they don’t make blind decisions. However, trying to time the market is not always the best strategy for any type of investment, including real estate. Decision based on you Budget and goals Might be a better method. Before you make a decision, do your due diligence and run the numbers to determine how much you’ll pay and what you can save.