Mortgage rates are projected to remain elevated for a longer duration than initially anticipated. This shift is attributed to the most recent economic indicators. Below is a brief summary of the current mortgage rate scenario and the future outlook as forecasted by experts.

Economic Factors That Impact Mortgage Rates

When considering mortgage rates, various factors come into play such as the job market, inflation rate, consumer spending, geopolitical events, and more. The Federal Reserve (the Fed) and its monetary policy decisions also significantly influence these rates, which is currently a key topic of discussion.

In early 2022, the Federal Reserve opted to initiate an increase in the Federal Funds Rate in an effort to curb the pace of the economy and address inflation. This rate directly influences the borrowing expenses for banks. While it does not dictate mortgage rates, changes in mortgage rates are prompted as a response to this decision. Consequently, this was the period when mortgage rates notably began to rise.

And although we've made significant progress in reducing inflation since then, it hasn't yet reached the Federal Reserve's desired level of 2%. Check out the graph below for a visual on how inflation has trended since the peak in early 2022 and where we currently stand in relation to the target rate.

In 2024, we are approaching the 2% inflation goal more closely than we were in 2022 but have not reached it yet. Over the past 3 months, there has been a slight increase in inflation, which is influencing the plans of the Federal Reserve, according to Sam Khater, Chief Economist at Freddie Mac.

““Strong incoming economic and inflation data has caused the market to re-evaluate the path of monetary policy, leading to higher mortgage rates.”
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— Sam Khater, Chief Economist at Freddie Mac

In summary, moving forward, it will be crucial to consider inflation and its effects on the overall economy. According to Greg McBride, Chief Financial Analyst at Bankrate, inflation will play a significant role in the foreseeable future.

““It’s the longer-term outlook for economic growth and inflation that have the greatest bearing on the level and direction of mortgage rates. Inflation, inflation, inflation — that’s really the hub on the wheel.”
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— Quote Source

When Will Mortgage Rates Come Down?

Based on the latest market data, analysts believe that inflation is likely to be more manageable, and there is a possibility of the Federal Reserve lowering the Federal Funds Rate later this year, albeit not as soon as initially anticipated. Mike Fratantoni, Chief Economist at the Mortgage Bankers Association, remarked on the recent decision by the Federal Open Market Committee (FOMC), indicating a potential shift in the timing of the expected rate adjustment.

““The FOMC did not change the federal funds target at its May meeting, as incoming data regarding the strength of the economy and stubbornly high inflation have resulted in a shift in the timing of a first rate cut. We expect mortgage rates to drop later this year, but not as far or as fast as we previously had predicted.”
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— Mike Fratantoni, Chief Economist at the Mortgage Bankers Association (MBA)

In simpler terms, this means that mortgage rates are expected to decrease later this year. However, the exact timing may change depending on new employment and economic information, ongoing geopolitical issues, and other factors. It's generally not recommended to try timing the market due to these uncertainties. An article on Bankrate offers buyers the following guidance:

““ . . . trying to time the market is generally a bad idea. If buying a house is the right move for you now, don’t stress about trends or economic outlooks.”
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— Bankrate