What's the long-range mortgage interest rate forecast?
It's no secret that mortgage rates are very high right now. As of October 30, the average interest rate for a 30-year fixed-rate mortgage is 8.05%; the rate for a 15-year fixed-rate mortgage stands at 7.19%. While that isn't the highest it has ever been, it is the highest it's been since 2000.
If you're reading this and thinking about waiting until 2024 to look for a mortgage, it unfortunately seems like there won't be much relief next year. Eventually, though, there will be changes to the mortgage climate. While it is impossible to predict exactly what will happen, there are ways to forecast what mortgage rates will look like down the line.
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What is the long-range forecast for mortgage rates?
Predicting the future of mortgage rates is a difficult business. There are myriad factors that go into determining the mortgage rate environment, including the federal interest rates set by the Federal Reserve, the state of the economy and the health of the bond market.
Right now, mortgage rights are high for several reasons, including the fact that the Federal Reserve has raised federal lending rates nearly a dozen times since 2022. This is because inflation has been very high, reaching more than 9% year-over-year at one point in 2022.
Raising interest rates cools lending, in theory, which results in less money going into the economy, which should lower inflation. It has worked to some degree — inflation for September was below 4%, which is a marked improvement, but still off from the 2% the Fed is aiming for. This could lead to another hike when the Fed meets on Oct. 31 and Nov. 1.
"Mortgage rate forecasting is an incredibly complicated and difficult undertaking," says Kelly Miskunas, head of capital markets at Better, an online mortgage company, in an e-mail. Looking ahead two years, however, Miskunas does see some relief coming for potential investors.
"In light of the information provided to us by markets that quantify future interest rates projections, the forward curve would most prominently inform our mortgage rate projections," she said. "We would expect mortgage rates to be closer to 6.5% in 2025 than the current rate of 8%."
Other projections align with that rate expectation. London-based firm Capital Economics firm noted in a recent report that "while we still expect mortgage rates to decline they are unlikely to fall below 6.0% before end-2025, muting any recovery in house purchase demand and sales volumes."
Miskunas declined to speculate on where mortgage rates might be five or 10 years from now, saying there were simply "too many exogenous factors" to do so accurately.
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Why are mortgage rates hard to predict?
In addition to the factors listed above, there are external factors that one cannot predict that might drastically change the mortgage rate environment five or ten years from now.
Geopolitical tensions loom in the background. These have the potential to have a major impact on the US economy now and in the future, so that could end up changing the mortgage rate environment in a big way.
"A flight to quality driven by international conflicts could materially lower interest rates, which in turn would cause mortgage rates to decline," Miskunas said. "In contrast, sustained domestic economic growth and inflation could result in the Federal Reserve maintaining restrictive monetary policy longer than the market is currently expecting, which would result in mortgage rates staying at elevated levels."
The bottom line
It's impossible to know what will impact mortgage rates down the line. There is reason to believe, though, that by the year 2025, there will be at least some relief for potential homeowners. Beyond that, things are much murkier, so waiting too long in hopes of a big chance might not make much sense.
