This is when you can expect mortgage rates to go down — and why you should buy before a recession hits

In recent years, mortgage rates in the US have soared to their highest levels in more than two decades, leaving many potential homebuyers and sellers wary.

The Federal Reserve’s efforts to combat languishing inflation have played a significant role, as the central bank raised interest rates 11 times from 2022 to 2023, taking the benchmark federal funds rate from 0% to 5.25-5.50%, according to Yahoo Finance.

Today, the median monthly mortgage payment on a new home stands at $2,256, about 7% higher than last year, the Mortgage Bankers Association (MBA) reports. So, when will mortgage rates go down? Experts from Fannie Mae and the MBA predict a gradual decrease by the end of 2025.

Forecasts indicate that 30-year mortgage rates, currently around 7.1%, might drop to 6.6% by the end of 2024, and further down to 5.9% by the end of 2025. However, experts caution that for mortgage rates to decline significantly, inflation must also fall.

Evan Luchaco, a home loan specialist at Churchill Mortgage, pointed out to Yahoo Finance that in order “to see rates improve, we need to see inflation numbers decreasing, new job creations slowing down, and potentially unemployment filings increasing.”

He suggested that these economic indicators could prompt the Fed to lower the federal funds rate, which would, in turn, reduce mortgage rates.

Jennifer Beeston, Senior Vice President of Mortgage Lending at Guaranteed Rate, echoed this sentiment, stating that “in order for rates to come down, we need to see inflation ease.” She also noted that past predictions have often been incorrect, adding an element of uncertainty to the forecast.

While experts expect mortgage rates to decline somewhat over the next year, they do not foresee a return to the 3% or 4% rates seen during the COVID-19 pandemic.

Neil Christiansen, another specialist at Churchill Mortgage, warned that a significant drop in rates would likely require a deep recession.

For those currently renting, experts suggest that if you qualify for a mortgage and can afford the payment, it might be wise to enter the market now.

Buying a home sooner rather than later allows for the opportunity to refinance if rates drop in the future.

“Home prices continue to increase at 5% to 6% year over year, and with the loss in appreciation and loan pay-down, the longer the buyer waits, the more they lose the opportunity to improve their net worth,” Christiansen added.

A little-known tactic to keep costs down is finding an “assumable mortgage,” in which buyers can take over an existing low-rate mortgage.

According to Intercontinental Exchange, about 23% of active mortgages are assumable, potentially saving buyers thousands of dollars each month. However, not all buyers will qualify for these deals.