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Mortgage rates remain elevated. Read on to see when they’re likely to come down.
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Today’s housing market is a tough one for buyers for several reasons. First, mortgage loans remain expensive to sign. Secondly, home prices remain elevated. And finally, there’s a glaring lack of housing inventory, and that’s largely due to where mortgage rates are sitting today.
As of this writing, the average 30-year mortgage rate is 6.6%, according to Freddie Mac. Seeing as how mortgage rates got close to 8% in late 2023, 6.66% reads like an improvement.
However, most homeowners today have a mortgage rate that’s well below 6.66%. And until rates fall, homeowners are likely to want to stay put.
Most borrowers are paying less than 5% on their mortgages
Recent data from Bank of America reveals that about 80% of existing mortgage borrowers have an interest rate of under 5%. This is likely due to most homeowners having either signed their mortgages prior to the pandemic, when rates were generally lower than they are today, or due to homeowners having refinanced their loans when mortgage lenders dropped their rates substantially in 2020 and 2021.
Because so many homeowners have a competitive mortgage rate, they’re unlikely to want to sell anytime soon. Doing so would mean swapping a low mortgage rate for a much higher one.
But that’s just apt to prolong the inventory shortage that’s been plaguing the real estate market since the pandemic began. And it’s apt to continue making it very difficult for would-be buyers to find a home.
When will mortgage rates get back to below 5%?
If inflation continues to cool in 2024, it’s likely that the Federal Reserve will cut interest rates. That could, in turn, lead to a drop in mortgage rates.
However, we’re unlikely to see mortgage rates fall below 5% this year due to where they are today. Also, the Fed’s rate cuts are unlikely to be drastic, so that could lead to a slower decline in mortgage rates.
Now, without a crystal ball, it’s hard to know when mortgage rates will get back to the sub-5% mark. But it’s fair to say that they’ll get there in time. However, until then, there are steps you can take to snag the most competitive mortgage rate you can given market conditions.
First, if possible, consider a 15-year mortgage instead of a 30-year loan. Shorter-term loans commonly come with lower interest rates. That said, your monthly payments will be higher with a 15-year loan than a 30-year loan, so you’ll need to make sure you can afford it.
Another key step to take if you want the best mortgage rate possible is to work on boosting your credit score. You can do so by paying all bills in a timely manner, paying off credit card balances, keeping long-standing credit accounts open, and reviewing your credit report regularly for errors.
In time, mortgage rates will hopefully become more attractive. Until then, you’re not doomed as a home buyer — especially if you take steps to put yourself in a position to score a good deal on a mortgage.
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