Experts Weigh in on Falling Mortgage Rates and the Housing Market
Over the last three years, the mortgage landscape has shifted dramatically, with average rates on 30-year fixed mortgages almost doubling. On August 19, 2021, borrowers could secure an average rate of 2.86%, whereas today’s rate has climbed to 6.57%. This sharp increase, combined with record-high home prices, has placed homeownership out of reach for many prospective buyers. However, recent months have brought some relief, with average rates dropping from 7.22% in early May to 6.57%. Experts believe that with potential Federal Reserve action, rates could fall even further by September.
Mortgage experts are closely watching upcoming inflation and employment reports. Jason Obradovich, chief investment officer at New American Funding, notes that inflation data, set to be reported on August 30, and the September jobs report will be key in determining the Fed’s decision on rates. If inflation continues to decline and unemployment rises, Obradovich suggests mortgage rates could see a substantial decrease, potentially even dipping into the 5% range by fall.
Not all experts, however, anticipate a dramatic dip below 6%. Rob Cook, vice president at Discover Home Loans, argues that while a Fed rate cut may create downward pressure on mortgage rates, it’s unlikely they’ll fall below 6% this year. He points out that market expectations for a September cut are already high, which means the effect of such a move may already be partially reflected in today’s rates. Jeff Tucker, principal economist at Windermere Real Estate, echoes this sentiment, predicting that any Fed reduction is unlikely to bring 30-year mortgage rates below the 6% threshold due to pre-existing market expectations.
Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage, sees rates trending lower, potentially reaching the 5% range in 2025. While acknowledging the potential for rate decreases, she encourages buyers not to focus exclusively on timing the market. With a reminder that it’s always possible to refinance if rates drop further, she highlights the importance of moving forward when the right home becomes available.
Yet, uncertainty remains. Obradovich points out that unexpected economic developments could push mortgage rates upward, regardless of employment trends. For example, if inflation unexpectedly rises, rates could increase despite high unemployment.
For prospective buyers considering whether to act now or wait, the decision involves weighing current conditions against potential future savings. Locking in today’s rates offers the stability of a fixed monthly payment, regardless of future rate hikes. Conversely, holding off could result in a lower rate down the road, meaning a reduced monthly payment. However, waiting may also lead to increased competition among buyers, potentially driving home prices higher if rates fall and more people re-enter the market.
Ultimately, the choice to buy now or wait depends on individual circumstances and priorities. As Alvarez advises, calculating potential costs carefully is essential; paying a bit more on a mortgage today could help buyers secure a home they love while minimizing the risk of getting outbid in a competitive market.