Mortgage Rate Price Predictions: Will 3% Loans Ever Come Back?

Mortgage Rates, Fed Rate Hike

While unemployment continues to make promising strides in the face of gradually easing inflation, interest rates — and by effect mortgage rates — remain elevated. Indeed, for hopeful homebuyers wanting to avoid getting burned by high mortgage payments, the housing market has been especially cold lately. With national average 30-year fixed mortgage rates climbing to 7.25%, more and more potential homeowners are wondering: Will 3% loans ever return?

Well, maybe. Mortgage rates tend to track Treasury yields. The 30-year fixed rate specifically follows the 10-year bond, higher by typically 1.7%, or 170 basis points. However, as a result of the Federal Reserve’s flurry of rate hikes and the general uncertainty in the economy, the spread between the 10-year yield and mortgage rates has been notably wider than usual.

Currently, the spread between 30-year mortgages and the 10-year yield is more than 3%. This has lifted mortgage rates beyond what they’d be in the absence of the Fed’s historic tightening campaign. As inflation continues to ease — assuming the Fed maintains its relatively dovish recent demeanor — it’s likely for mortgage rates to follow suit to some extent. That said, according to many economists, 3% mortgages may still be a pandemic-era memento rather than an eventuality.

“While mortgage rates likely will come down some in the second half of the year, there will be no return to the 3 percent rates we had during the pandemic,” Lisa Sturtevant, Chief Economist at Bright MLS, told Bankrate. “Homebuyers have had to accept the new normal of rates around 6.5 percent or even a little higher.”

Even a 1% decline in mortgage rates can mean a significant per-month difference in monthly home payment. As such, many homebuyers are eager to see just when — and how far — mortgage rates may drop.

Mortgage Rate Price Predictions

Most economists believe that, so long as inflation continues to slow, combined with a more deliberating Fed, mortgage rates will likely be headed downward. The degree to which mortgage rates fall, however, remains a point of debate.

Christine Cooper, Chief U.S. Economist at CoStar Group, believes rates could fall to the 5% range before year-end:

“As economic growth slows and inflation abates, the 10-year Treasury is likely to move lower, and mortgage rates will follow, with the spread between them narrowing to a more normal range […] Projections suggest the 30-year rate to fall below 6% by the end of 2023 and to be between 5% and 5.5% at the end of 2024.”

Cooper isn’t alone in her optimistic estimations. Mortgage Bankers Association (MBA) Vice President Joel Kan predicts the 30-year will fall to 5.6% by the end of the year. Similarly, Bank of America Head of Retail Lending Matt Vernon says that “Bank of America Global Research expects mortgage rates to fall to 5.25% by year-end.”

On the other hand, the National Association of Realtors (NAR) is a bit more conservative. NAR predicts that “mortgage rates will drop—with the 30-year fixed mortgage rate progressively falling to 6% this year and to 5.6% in 2024.”

Realtor.com Economist Jiayi Xu also believes mortgage rates will take a slightly slower route to sub-6% levels. Xu expects “a gradual decline that could bring rates near 6% by year-end.”

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