Now That Inflation Is at 3%, Will Mortgage Rates Finally Come Down?

If you're dreaming of closing on a mortgage loan and getting the keys to your very own home, you're not alone. Unfortunately, mortgage interest rates jumped from the 3% range to touch 7% over the course of 2022, and despite a few dips here and there, as of this writing we're still sitting at an average rate of 6.81% on a 30-year fixed mortgage (according to Freddie Mac).

A higher mortgage rate only serves to make the most expensive purchase of your life even more costly, so as we watch inflation fall, you're likely wondering if mortgage rates will follow suit. Let's take a closer look at inflation and the federal funds rate, and see some expert predictions for the future of mortgage rates.

The Fed just raised rates again, despite inflation easing

Yes, inflation is finally easing -- hooray! The most recent Consumer Price Index found that inflation stood at 3% in June 2023, which is a stark contrast from the 9.1% just a year prior. This is clearly a welcome change, and you might expect that as prices ease elsewhere, we could see mortgage rates take a similar dip.

However, despite the lower inflation and taking a break on interest rate hikes at its June meeting, the Federal Reserve just elected to bump rates up yet again in July. This was the 11th rate hike since March 2022, and the current federal funds rate is 5.25% to 5.50%.

While this rate isn't directly correlated with consumer borrowing rates, the two are linked -- if it costs banks more to loan to one another, consumers will pay more to borrow as a result. The Federal Reserve has three more meetings left this year, and it remains to be seen what will happen next. AP News reported that Federal Reserve Chair Jerome Powell was noncommittal about future moves.

Some experts are predicting a modest drop in 2024

Unfortunately, some mortgage experts don't expect to see lower rates until 2024. The National Association of Realtors is predicting a return to rates under 6% by the end of 2023, and a rate of 5.6% next year. The Mortgage Bankers Association released data in June that predicted a rate of 5.8% in Q4 2023, and a further drop over the course of 2024 to land at 4.9% in Q4 2024.

These are optimistic predictions, but no one really knows for sure what comes next. One silver lining to stubbornly higher rates is that they're an indication that the much-predicted 2023 recession hasn't yet come to pass.

Should you buy a home now?

If you can afford a higher monthly cost due to higher mortgage rates, there's really no reason to wait if you want to buy a home. To put yourself in the best possible position, it's worth saving up as much as you can for a down payment -- remember, the more you put down, the less you have to finance at 6% or higher. Work on improving your credit score, as the higher it is, the more likely you'll be to qualify for a better rate when you're ready to buy.

And shop around with the best mortgage lenders rather than going with the first offer you get. You may be able to refinance your mortgage later, if rates come down, but it's still worth trying to secure the best deal possible now.

It's certainly frustrating to look back at the recent past and see mortgage rates in the 3% range just a year and a half ago. Take a deep breath and rest assured that none of us really know where rates will go -- but we all get to sit and watch together.