Why Are Mortgage Rates So High, and How Long Will They Stay Up? (2024)

FAQs

How long will mortgage rates stay elevated? ›

In our baseline, slower growth and a weaker labor market help to rein in inflation while the economy throttles back but avoids stalling. Our baseline scenario has one Federal Reserve rate cut towards the end of the year. As a result, we expect mortgage rates to remain elevated through most of 2024.

Economists and housing market experts agree that mortgage rates will fall over the next several years, but not below 3%.

Mortgage rates could fall in 2024, but that's not a given. The Mortgage Bankers Association projects a 6.5% rate by the end of the year, while Fannie Mae predicts 2024 will end with rates at 7%.

An interest rate forecast by Trading Economics, as of 12 May, predicted that the Fed Funds Rate could hit 5.25% by the end of this quarter - a forecast that has been materialised. The rate is then predicted to fall back to 3.75% in 2024 and 3.25% in 2025, according to our econometric models.

But until the Fed sees evidence of slowing economic growth, interest rates will stay higher for longer. The 30-year fixed mortgage rate is expected to fall to the mid-6% range through the end of 2024, potentially dipping into high-5% territory by the end of 2025.

Morgan Stanley strategists expect 30-year mortgage rates will stabilize around 6.25% by the middle of 2025. This potential decline from the near-8% peak in 2023 may translate to modest improvements in housing affordability.

Mortgage rates are expected to come down in 2024, and inventory and home sales are likely to increase. Homebuyers and sellers can also expect prices to continue to rise, albeit at a slower clip than the past couple of years.

The 10-year treasury constant maturity rate in the U.S. is forecast to decline by 0.8 percent by 2026, while the 30-year fixed mortgage rate is expected to fall by 1.6 percent. From seven percent in the third quarter of 2023, the average 30-year mortgage rate is projected to reach 5.4 percent in 2026.

However, increases should slow between 2024 and 2026, and rates may even decline in 2027. Among the factors that could impact mortgage rates in the next 5 years are inflation, Federal Reserve policy, and economic growth. Homebuyers should consider locking in a low mortgage rate now, as rates are expected to rise soon.”

And then, of course, if we see weakness in terms of economic activity or the job market, then that would just add further reason to bring interest rates down. So, we're actually ultimately expecting the federal-funds rate to fall still to a target range of 1.75% to 2.00% by year-end 2026.

Why are mortgage rates so high? ›

When inflation is running high, the Fed raises those short-term rates to slow the economy and reduce pressure on prices. But higher interest rates make it more expensive for banks to borrow, so they raise their rates on consumer loans, including mortgages, to compensate.

As of June 6, 2024, the average 30-year fixed mortgage rate is 6.85%, 20-year fixed mortgage rate is 6.59%, 15-year fixed mortgage rate is 6.04%, and 10-year fixed mortgage rate is 5.92%. Average rates for other loan types include 6.75% for an FHA 30-year fixed mortgage and 6.91% for a jumbo 30-year fixed mortgage.

The benefit of a fixed-rate mortgage is that your interest rate stays consistent. But your monthly mortgage bill can still change — in fact, it generally fluctuates at least a little bit every year. Rising home values and insurance premiums have caused unusually dramatic increases for some homeowners in recent years.