When will mortgage rates fall? Experts say these 4 things need to happen first

The average 30-year mortgage loan rate is sitting just above 7% this week after hitting a 2024 high of 7.22% earlier in the month. That may seem high, but overall, mortgage rates have stabilized since late 2023 after climbing rapidly due to the Federal Reserve's 11 rate hikes in 2021 and 2022, which were done in an effort to slow skyrocketing inflation. During that time, mortgage rates jumped from an average of 2.65% in early 2021 to 7.79% in October 2023.

But the Fed has opted to keep rates paused at a 23-year high since mid-2023, and, in turn, the mortgage rate tides have calmed, with mortgage rates hovering between 6.5% to 7% on average this year. While the Fed had hinted at several rate drops in 2024, they haven't occurred yet, as stubborn inflation and other factors have delayed them.

The mix of elevated mortgage rates and high housing prices in today's market is preventing many potential homebuyers from submitting offers. Many are reexamining their housing plans or waiting for borrowing costs to drop before making any moves. In turn, many would-be home buyers are asking the fundamental question: When will mortgage rates fall? 

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When will mortgage rates fall? Experts say these 4 things need to happen first

According to the experts we spoke to, these things need to happen before mortgage rates drop.

The Federal Reserve must lower the federal funds rate

"Mortgage rates will not fall until either the Federal Reserve lowers their benchmark rate, or they indicate that they will lower interest rates very soon," says Jason Obradovich, chief investment officer at New American Funding.

While the Fed doesn't directly set mortgage rates, these and other consumer interest rates tend to follow changes made to the federal funds rate. For example, mortgage rates often fall before the Fed announces an interest rate cut, as lenders anticipate the decision and adjust rates in advance to stay competitive.

And, Obradovich notes that today's mortgage rates have already priced in any rate cuts this year. 

"If the Fed doesn't end up lowering rates or starts signaling that they don't intend to lower rates in 2024, then we could actually see mortgage rates move higher as the market adjusts to this new reality," he says.

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The inflation rate must drop

Just as inflation drives up interest and mortgage rates, lower inflation can help rates fall.

"Inflation so far this year has been stuck around 3.7%. We have had a few data points recently such as the last Consumer Price Index number that showed the rate of inflation has finally dropped a bit in 2024. We will need to see that continue for rates to drop significantly," Melissa Cohn, regional vice president at William Raveis Mortgage, says.

The spending rate must decline

Ralph DiBugnara, founder and president of Home Qualified, doesn't anticipate a significant drop in mortgage rates or a Fed interest rate cut until there are consecutive months of lower inflation, reduced consumer spending and potentially higher unemployment.

"The Fed is looking for signs that spending has slowed, which will bring down overall prices. The reports we have started to see from March and April seem to signal that. I don't believe we will see a rate reduction like consumers are looking for [until] possibly late in 2024 into early 2025," says DiBugnara.

The 10-year Treasury bond yield must fall

Because the 10-year Treasury bond is an indicator of long-term interest rates, it may foreshadow what happens with mortgage rates. Generally, mortgage rates move in tandem with the fluctuations of the 10-year bond yield.

"Mortgage rates will fall when the yield of the 10-year bond drops," adds Cohn. "The yield will drop when there is more consistent evidence that the rate of inflation is declining towards the Fed's goal rate of 2%."

The bottom line

If you're contemplating a new home purchase in today's market, you may want to consider a few strategies for dealing with higher mortgage rates. Waiting for mortgage rates to drop before purchasing a home could be prudent, of course, but experts warn lower rates could drive up competition and, consequently, home prices.

"At their core, home prices are the result of supply and demand," Obradovich says. "In areas where supply is short, home prices are likely to stay strong. In those markets, we encourage buyers to be very aware that if rates come down, it could cause a re-acceleration in prices. For markets where supply is catching up to demand thanks to homebuilding, we think buyers can be more patient but need to be cautious if rates drop quickly."