In November, the average rate for a 30-year fixed mortgage finally dipped back below 8%, providing some anticipation in a market that’s been grappling with the worst affordability in 40 years.
Where mortgage rates go next will depend largely on what happens in the next two weeks following the release of labor and inflation data. The November jobs report, scheduled for release Friday, will shed more light on how the central bank’s string of aggressive rate hikes have affected the economy. It will also give investors a better idea of what to expect from next week’s inflation data and the Federal Reserve’s final policy meeting of the year.
“The holiday season might present a quieter phase in the housing market,” said Matt Dunbar, of Churchill Mortgage. Dunbar explains that many prospective buyers tend to put their homebuying plans on hold amid holiday preparations and celebrations. “This reduction in competition can sometimes offer a more accommodating environment for homebuyers,” he added.
Granted, rates are still high compared with where they were just a few years ago. But some eager buyers have jumped at the chance to nab even a slightly lower rate on their home, causing demand for home loans to increase several weeks in a row, according to the Mortgage Bankers Association.
Here’s what experts say about mortgage rate trends and what you can do if you’re in the market for a new home.
Fluctuations in mortgage rates are normal
When inflation hit record highs early last year, the Federal Reserve stepped in to slow the economy by hiking interest rates. Since March 2022, the Fed has carried out nearly a dozen rate increases, and mortgage rates more than doubled. In late July, the central bank entered a holding pattern to assess progress on inflation and evaluate economic indicators before making its next move.
To bring inflation down, the Fed has made it clear that it will need to see a less competitive labor market, in which hiring slows and unemployment levels increase. It’s an uncomfortable reality, but the Fed is hopeful that by taking a cautious approach, it will be able to avoid a full-blown recession and significant damage to the labor market.
This week’s labor data is significant for mortgage rates because it’s likely to cause some movement in the 10-year Treasury yield. The average rate for a 30-year fixed mortgage typically tracks with the yield on 10-year Treasury bonds: When yields rise, mortgage rates generally increase (and vice versa).
After a positive labor reading and better-than-expected inflation data last month, the yields on the 10-year Treasury and mortgage rates both fell. If the pattern continues this month, it’s likely to spell more good news for mortgage rates as we close out the year. But if economic data points to inflation heating back up, it’s likely we’ll see yields on the 10-year Treasury and mortgage rates increase, according to Gregory Heym, chief economist at Brown Harris Stevens. It could also mean the Fed will need to keep rates higher for longer than investors had hoped, or even open up the door to additional policy tightening.
Mortgage rates are constantly changing in response to a range of macroeconomic factors, market conditions, investor confidence and global events. While the central bank doesn’t set mortgage rates directly, its policy decisions and statements have an impact on the direction of longer-term rates.
Still, there is growing consensus among experts that the Fed has concluded its rate hikes, which could mean that mortgage rates have witnessed their peak, said Jared Antin, managing director at the real estate agency Elegran. Antin expects continued signs of cooling inflation to “exert downward pressure” on both the 10-year Treasury yield and mortgage rates as the year wraps up.
Historical mortgage rates
Put into historical context, today’s current rates aren’t an anomaly: Average rates were above 8% in the year 2000. But compared to the ultralow rates just a few years ago, the combined impact of higher rates and higher home prices has driven up the monthly costs of financing the typical listed home more than 12.4% from a year ago, according to Realtor.com’s September 2023 estimates. That number surpassed both inflation and wage growth for the same period.
Average 30-year fixed mortgage rates 1971-2023
Where rates might be headed in December
The Federal Reserve will hold its next policy meeting on Dec. 12-13. If the Fed is done with rate increases altogether, that would be good news for mortgage rates.
“This history of economic cycles has shown us that once the Fed is done hiking, mortgage rates always go lower, and they don’t surpass the most recent high, which was 8.03% this year,” said Logan Mohtashami, HousingWire lead analyst.
More important than what the Fed does (or doesn’t do) during its upcoming meeting is what Fed Chair Jerome Powell says when he delivers the central bank’s economic projections. Those projections will signal to investors what’s to come in 2024.
“As a result of more certainty around Fed action, there could be some downward pressure on mortgage rates, or at the very least, some stability,” said Odeta Kushi, deputy chief economist at First American Financial Corporation.
But don’t expect to see any dramatic dips (think below 7%) in mortgage rates in the near term. The Fed has a 2% annual target rate for inflation, and right now inflation is at 3.2%. Experts stress that the Fed won’t consider cutting rates until inflation is at or much closer to that target.
If you’re looking to buy a home before the new year, keep a close eye on daily rate movement. “Typically speaking, mortgage interest rates can go a little lower during the holidays,” said Christopher Naghibi, chief operating officer at First Foundation Bank. Because fewer people apply for mortgages around the busy season, lenders may lower mortgage rates to entice borrowers and keep a steady flow of loans through the end of the year.
But Naghibi notes that this year is a bit of an outlier given wild swings in the 10-year Treasury. And there can always be surprises down the road that could push mortgage rates back up in the near term. “The geopolitical unrest, the looming 2024 election, the unprecedented action taken by the Fed and the unprecedented economic stimulus during the pandemic have led to a very strange mortgage market,” Naghibi said.
What other forecasters say
While mortgage forecasters base their projections on different data, most predict rates will remain near or above 7% for the rest of 2023. Here’s a look at where some of the major housing authorities expect average mortgage rates to land at the end of the year.
Expert advice for homebuyers
It’s never a good idea to rush into a major purchase like buying a home without knowing what you can afford, especially with today’s higher rates. If you haven’t updated your homebuying budget recently, you could be in for a rude awakening when you get a mortgage quote.
Given the pent-up demand for homes, any small decline in mortgage rates could entice some prospective buyers to act now. But while the drop of a few percentage points in a mortgage rate can certainly be helpful in lowering a monthly payment, it won’t fundamentally alter the affordability equation.
“For potential homebuyers who can qualify at today’s interest rates and home price levels, I would think the greater difficulty is finding a desirable and affordable home to buy,” said Keith Gumbinger, vice president of mortgage site HSH.com. “Dips in mortgage rates may come unexpectedly, so it can pay to be opportunistic and nimble in order to capture any dip if it comes.” If you’re anxious to buy a home, it helps to get your paperwork in order and be ready to lock in a rate when it comes along.
Gumbinger also notes that buyers might consider a “float-down” option on a rate lock, allowing you to lock in a rate you can afford on a mortgage application while still reserving the opportunity to relock at a lower rate if conditions become more favorable.
Consider the rent vs. own equation
The housing market shouldn’t determine if you’re getting a home — your personal situation and financial circumstances should.
Whether it makes more sense to rent or buy a home isn’t just about comparing monthly rent to a mortgage payment. Buying a home requires thousands of dollars in upfront fees and a down payment, in addition to ongoing maintenance and upkeep costs. How long you plan to live in the area should also factor into your decision. If you sell the house in two or three years, you may not have enough equity built up to offset the fees.
Over the long term, though, buying a home can be a good way to increase your net worth, unlike renting. When you buy, you can also lock in a fixed interest rate, so your monthly payments won’t fluctuate compared to the rental market.
As the age-old saying goes, “Marry the home, date the rate,” meaning the rate you lock in when you take out a mortgage doesn’t have to be permanent. If rates decline in the future, you can refinance your mortgage to get a new, lower rate.
Shop around for lenders
Not all mortgage lenders are created equal. When you start looking for potential lenders, it’s a good idea to compare multiple offers at once.
Based on factors such as your credit score, debt-to-income ratio and down payment, a lender can estimate your interest rate, monthly mortgage payment and closing costs. Experts recommend getting at least three loan estimates from different lenders so you can get a true apples-to-apples comparison.
A good lender should be in tune with what’s available in your market and help you navigate your options, in addition to explaining things like how private mortgage insurance factors in.
Most importantly, it’s critical to work with a reputable and preferably local lender, said Alix Nadi from Re/Max Around Atlanta Realty. “They are the only ones who can give definitive answers regarding what the buyer qualifies for, what those payments look like and what costs are associated with the purchase,” Nadi said.
