How Long Will Interest Rates Stay High?

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When you are finally in a place where you are thinking of buying a home, you want to get all your ducks in a row. This includes money for the down payment and a solid credit score. But it may come to shock you that the home price tag is not the only number you need to worry about. Long-term loans from mortgage lenders can come with high-interest rates that may move your modest dream home slightly out of your reach. What’s more, rates constantly fluctuate, which makes it hard to predict changes that impact your mortgage payment and the total interest you pay over the life of the loan.

Higher Interest Rates: Quick Take

According to Freddie Mac’s weekly mortgage rate report released on May 23, the average rate for a 30-year fixed-rate loan was 6.94% after having dropped slightly two weeks in a row. The monthly average as of that date was 7.07% — 0.07% higher than the 52-week average.

Freddie Mac attributed the decrease to a slightly improved inflation report and a dip in 10-year Treasury yields, which influence mortgage rates.

But how long will interest rates will stay high? Experts predict a slight decrease toward the end of 2024, but rates might not drop appreciably below 6% until 2026.

Mortgage Rate Predictions for 2024 Through 2026

The average rate on a 30-year fixed-rate mortgage — the gold standard for tracking mortgage rates — reached its highest level in 23 years in 2023, according to data from the Federal Reserve Bank of St. Louis. Higher rates make borrowing money less affordable, which means you might have to adjust your budget or your timeline according to the realities of the market.

It’s important to know that even the experts don’t have a crystal ball, but looking at what they think rates will do over the next couple of years can help you predict when the right time might be to buy a home or refinance your current mortgage. Here are some key takeaways from the April 18 Mortgage Bankers Association Mortgage Finance Forecast:

• The average rate could drop to 6.4% by the fourth quarter of this year.
• The average rate could fall slightly below 6%, to 5.9%, in the fourth quarter of 2025.
• The average rate could reach 5.5% in 2026.

The reduction predicted for this year will depend on whether the Federal Reserve reduces the federal funds rate. Fed Chairman Jerome Powell has suggested that the Fed will cut the rate three times, for a total decrease of 0.75%, as long as the inflation rate moves toward the Fed’s 2% goal and other economic indicators remain strong. Three-quarters of the economists polled by Reuters expect the first cut to come in September, to be followed by just one additional cut later in the year.

When Will Interest Rates Go Down?

Everything seems so much more expensive these days. Whether it is your weekly trip to the grocery store or big-ticket items like buying a house, it would be nice if some things were a bit more attainable. Today’s interest rates put the option of becoming a homeowner out of reach for many Americans. So when will interest rates drop?

Here are some quick takes from leading mortgage experts:

• Fannie Mae: This mortgage-industry giant predicted in March that the average 30-year fixed rate will drop to 6.4% by the end of 2024. That forecast is an upward revision of a previous 5.9% prediction.
• National Association of Realtors: In a forecast issued in April, NAR predicted rates to average 6.8% at the end of 2024 and drop to 6.2% in 2025. That’s also an upward revision for 2024, in this case from 6.3%, according to Yahoo Finance.
• Realtor.com: The real estate portal site expects mortgage rates to be around 6.5% at the end of 2024.
• Wells Fargo: As one of the leading lenders in the banking industry, Wells Fargo puts together its U.S. Economic Outlook monthly. In an update to its April report, it forecast that mortgage rates would drop to 6.5% by the end of 2024 and fall below 6% by the end of 2025.

Mortgage Rates vs. Housing Market

Because higher mortgage rates make borrowing money that much more expensive, the housing market often reflects these higher rates by showing less buying and selling activity. No matter what end of the spectrum you fall on — whether you are trying to sell your home or buy a new one — high rates affect everyone. 

There is a direct correlation between mortgage rates and housing prices. The higher the average interest rate, the slower the housing market tends to become. The cost of owning, selling or buying a home becomes more expensive the higher the interest rate goes up. However, the current market has been fairly resilient as buyers build instead of purchase existing homes to compensate for low inventory, and a higher percentage of cash buyers, who are unaffected by mortgage rates, enter the residential market.

Final Take To GO

Ultimately, interest rates are a direct reflection of the current economic state and what is driving inflation. Everything from what you earn on your CD or savings account to your monthly mortgage payments will come down to interest rates. High-interest rates may be commonplace today, but they fluctuate so there is a chance they will go back down and are predicted to do so by the end of 2024.

Information is accurate as of May 28, 2024. 

Caitlyn Moorhead contributed to the reporting for this article.

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