Mortgage rates are unlikely to fall anytime soon — here’s why | Real Time Headlines

mortgage interest rates has risen In recent months, even though the Federal Reserve reduced interest rate.

Economists and other financial experts say that while these opposite moves may seem counterintuitive, they are caused by market forces that appear unlikely to ease significantly in the short term.

This can leave potential homebuyers with a difficult choice. They are either delaying home purchases or staying at current mortgage rates. The latter option is complicated by rising home prices, experts say.

“If you’re hoping or wishing for interest rates to go to 4% or home prices to drop 20%, I personally think both of those things are unlikely to happen in the short term,” said Lee Baker, a certified financial planner in Atlanta and a CNBC member. financial advisory committee.

30-Year Fixed Mortgage Rate jump to it That number rose 7% in the week ended January 16, according to Freddie Mac. They have been gradually rising since late September, when they hit recent lows near 6%.

Current interest rates are a bit stressful for consumers, who were paying less than 3% on a 30-year fixed mortgage as recently as November 2021, before the Federal Reserve sharply raised borrowing costs to curb high inflation in the United States. .

“Any number above 7%, the market is dead,” said Mark Zandi, chief economist at Moody’s. “No one is going to buy it.”

He said mortgage rates would need to be closer to 6% or lower to “see the housing market regain its vibrancy.”

Financial calculations show why: A consumer with a $300,000, 30-year fixed mortgage at 5 percent would pay about $1,610 per month in principal and interest, according to Bankrate analysis. They will reportedly pay about $1,996 – about $400 more per month – with an interest rate of 7 percent.

At the same time, the Federal Reserve Start cutting Rates were raised in September as inflation had eased. central bank reduce Its base interest rate is three times higher than during the same period, a full percentage point.

Zandi said that despite the shift in Fed policy, mortgage rates are unlikely to fall back to 6% before 2026. There are underlying forces that “are not going away anytime soon,” he said.

“It’s likely that mortgage rates will move higher before they slow down,” Zandi said.

First thing to know: Mortgage rates are more closely related to yields 10-Year U.S. Treasury Bond Baker, founder of Claris Financial Advisors, said this is more important than the Fed’s benchmark rate.

As of Tuesday, the yield on those bonds was about 4.6%, up from about 3.6% in September.

Investors who buy and sell Treasury bonds affect these yields. Experts say that number appears to have risen in recent months as investors worry about the impact of President Donald Trump’s proposed policies on inflation.

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Policies such as tariffs and mass deportations of immigrants Inflation expected to increaseIf they become a reality, experts say. If that happens, the Fed could lower borrowing costs more slowly and potentially raise them again, experts say.

In fact, Fed officials Recently cited There are “upside risks” to inflation due to the potential impact of changes in trade and immigration policies.

Investors are also worried about the big package Anticipated tax changes Zandi said the federal deficit is likely to increase under the Trump administration.

There are other factors that affect Treasury yields.

For example, the Fed has reduced its holdings of Treasury bonds and mortgage-backed securities through quantitative tightening, while Chinese investors have “become more cautious” in purchasing Treasuries, while Japanese investors are less interested because they can now obtain Returns on U.S. Treasury Bonds.

“Assuming everything goes as expected, mortgage rates likely won’t fall below 6% until 2026,” said Joe Seydl, senior market economist at JPMorgan Private Bank.

There are several reasons for higher spreads: For example, market volatility makes lenders more conservative in their mortgage underwriting, and this conservatism is exacerbated by market volatility. Regional banking “shock” in 2023Seidel said this resulted in “severe tightening of lending standards.”

“All in all, 2025 is likely to be another year in which housing affordability remains a serious challenge,” he said.

Seidel said higher premiums are “exacerbating housing affordability challenges for consumers.”

Typical home buyer Salary According to the National Association of Realtors, the price of an existing home in November was $406,100, up 5% from $387,800 a year earlier.

People who want to buy a house should try to put down the “big things” down paymentto reduce the size of your mortgage and help it fit more easily into your monthly budget, Baker said.

Don’t let down payment savings be affected by the stock market, he said.

“This is not something you should be gambling on in the market,” he said.

For example, savers can still earn returns of about 4% to 5% from money market funds, high-yield bank savings accounts or certificates of deposit.

Some consumers may also wish to obtain adjustable rate mortgage This approach may get consumers a better mortgage rate now, but could leave buyers with higher payments later due to interest rate fluctuations, Baker said.

“You’re gambling,” Baker said.

For example, he wouldn’t recommend this approach for people who retire on a fixed income because their budgets are unlikely to have room for potentially higher monthly payments in the future, he said.