Mortgage rates expected to decline this fall

Mortgage rates seem to be headed downward this fall, but no one knows how far they’ll drop.

Reprice

The average 30-year fixed mortgage rate slips to 6.44%

Spread: 264 bps pic.twitter.com/LdYnNTZ2EU

— Lance Lambert (@NewsLambert) August 23, 2024

Many experts think you should focus more on your budget and take steps to prepare for homeownership regardless of what happens with mortgage rates. “National [mortgage rate] trends can be helpful for knowing if the tide is coming in or going out, but a knowledgeable local real estate agent is irreplaceable when it comes to navigating the particulars of your local market and finding the best deal on the perfect home,” says Jeff Tucker, principal economist at Windermere Real Estate.

No big shift today—the start of the rate cutting cycle was already priced in

The average 30-year fixed mortgage rate today: 6.46%

Spread: 264 bps pic.twitter.com/YkryvA3tu2

— Lance Lambert (@NewsLambert) August 23, 2024

If you decide to purchase a home now, remember that you can always refinance later, advises Melissa Cohn, regional vice president at William Raveis Mortgage. Over the past couple of years, Americans dealt with persistent inflation in the U.S. economy. In an effort to keep inflation at bay, the Federal Reserve raised its benchmark rate several times.

Average 30-Year Mortgage Rate in the US…
1970s: 8.9%
1980s: 12.7%
1990s: 8.1%
2000s: 6.3%
2010s: 4.1%
2020s: 4.9%
—
All-Time Low (Jan 2021): 2.65%
2023 Peak (Oct 2023): 7.79%
Today's Rate: 6.46% (lowest since May 2023)https://t.co/l5IYmkeySJ pic.twitter.com/aMoeJCTqDO

— Charlie Bilello (@charliebilello) August 25, 2024

As a result, this increased the interest rates for many consumer loans, including mortgages, making it too expensive for many people to buy a home. While mortgage rates remain relatively high, as of August 19, 2024, the rate is 6.57%, which is significantly higher than the pandemic-era lows of below 3%. However, rates have declined a little in recent months, and the Fed might cut rates soon, which could lead to even lower mortgage rates. In today’s unusual economic environment, other factors such as the health of the economy also impact mortgage rates. Bad news for the economy can be good news for mortgage rates, according to Cohn. Many experts we interviewed believe mortgage rates will gradually decline this fall. With the Fed expected to cut rates for the first time at its September meeting, some think that this event may already be priced in. If economic data continues to show the economy is cooling off and inflation is getting under control, then most economists expect the Fed will begin a series of rate cuts, which will cause mortgage rates to gradually decline,” says Rob Cook, Vice President of Discover Home Loans. If the Fed takes action by cutting rates in September, that will likely have a positive impact on mortgage rates. However, rates aren’t expected to fall by that much because the market has already assumed the Fed will do so, resulting in a recent slight decline in mortgage rates. Tucker has similar thoughts.

Mortgage rate trends this fall

No one has a crystal ball for mortgage rate movements, but I think rates will continue to modestly decline, in a two-steps-down, one-step-up pattern, thanks to cooling inflation and a softening labor market,” he says. These trends and the predicted start to rate cuts by the Fed are common knowledge, he adds. To some extent, they have already been priced in – which is why interest rates fell almost half a point in the last couple of months. Cohn also thinks mortgage rates will drop this fall. “I think that the general direction of mortgage rates will be downward as we head into the fall,” she says. Her reason for believing this is that economic data has shown that inflation is moving closer toward the Fed’s target 2% rate. If you plan on purchasing a home soon, you might wonder just how far rates could drop. Tucker says he doesn’t know precisely but thinks we could see mortgage rates between 6% and 6.5% this fall. “Below 6% sounds like a long shot, and if I had to get more precise, I think somewhere around 6.25% is reasonable,” he says. Whether purchasing a home now is a smart move — or waiting for rates to potentially drop — depends on your unique financial situation. Before you take out a mortgage, review your budget to determine how much home you can afford. “The decision to wait (or not) for home loan rates to drop largely depends on the consumer’s individual situation,” says Cook. There are benefits to buying now if you’re financially prepared. For example, locking in a fixed mortgage rate now protects you against future rate increases. Cohn believes if you lock in a rate now, you could have less competition in the future. As rates drop, more buyers will come into the market, and prices will rise,” she says. In turn, she thinks buyers are much better off paying less for a home and then refinancing when rates bottom out in the future.