How Low Will Mortgage Rates Go?

High mortgage rates have put a squeeze on homebuyers and homeowners looking to refinance, but relief may be in sight. Experts expect that the Federal Reserve will cut the federal funds rate in September, the first rate cut of 2024. The impact of the Fed rate on mortgage rates may not be immediate, as markets have likely already factored in this expected cut. Still, this move could lead to lower mortgage rates in the coming months.

Mortgage rates have made almost a 2% move lower from the highs of 2023. Now that the jobs week data is in, the question is: can mortgage rates go even lower? The answer is yes, but we will need more economic weakness, better spreads and a more dovish Fed. While the Fed can be old and slow, the bond market, thankfully, is doing a lot of the heavy lifting and has already priced in a lot of Fed easing policy.

But how low might they go, and what does this mean for your homebuying or refi plans? To see rates under 6% we will need a few things to happen:

• 10- year yield:  The yield needs to break through the 3.20% barrier for consecutive days

• Economy: A weakening economy often results in lower rates.

• Jobs: Rising unemployment may lead to rate decreases as this indicates a slowing economy

• Inflation: Lower inflation rates allow for mortgage rate reductions. Fed has targeted a 2.2% rate of inflation & we currently sit at 2.5%

• Mortgage Spreads: With the Fed expected to lower the Fed Funds Rate this will help bring the spreads down. Mortgage spread is the difference between the 30 year mortgage rate and the 10 Year Yield. The closer these are, the smaller the spread, the lower rates will be.

• Election: Political uncertainty can cause mortgage rates to fluctuate, with possible policy changes affecting market expectations.

• Global events: Geopolitical tensions can sway rates (e.g. conflicts that raise oil prices could keep inflation high, preventing rate cuts).

  With rates hovering in the low 6’s for top tier borrowers its a good time to get your ducks lined up for when rates do come down. Have your financial packet ready to go so when rates do hit that low you know your ready lock in.