Despite cooling inflation, the average 30-year fixed mortgage rate sat near a high 7% throughout July. Experts don’t expect that to change by much in August. The Federal Reserve may soon be done with interest rate hikes, but today’s mortgage rates aren’t going to see a significant decline in the near future. Here’s what experts have to say about August’s mortgage rate trends and what you can do.
Experts predict: What will happen with mortgage rates in August?
“Barring some radical change in the trajectory of inflation or a recession, it seems unlikely that the Fed will increase rates further after July,” said Krieg Tidemann, assistant professor of economics at Niagara University.
That could signal good news for potential homebuyers. But until inflation finds it way down to a target range around 2% -- and remains steady for a while -- the Fed is unlikely to begin actually cutting interest rates. In the near term, mortgage rates are likely to stay roughly where they are: between 6.5% and 7%.
If mortgage rates are indeed near their peak currently, they’re likely to start declining by early 2024 or before, Tidemann said. Doug McKnight, president of commercial real estate firm RREAF Holdings, expects mortgage rates to hold close to 7% through the end of the year.
Or they could go lower. Darren Tooley, senior loan officer at Cornerstone Financial Services, predicts mortgage rates will end up in the low 6% range by year end. “If inflation continues to decline, I don’t think rates in the high 5% range are completely out of the question for the end of 2023 or the first quarter of 2024,” he said.
What is affecting mortgage rates right now?
The main factors impacting today’s mortgage market are inflation and the Federal Reserve’s ongoing battle to tame it.
Last spring, the Fed began bumping up its federal funds rate -- a short-term interest rate that determines what banks charge each other to borrow -- as part of its bid to reduce prices by weakening demand. The central bank has increased rates 11 times since March 2022, most recently by a quarter of a percent on July 26, and price growth has been slowing each month in 2023.
June’s inflation report showed prices for consumer goods up 3% year over year, which was lower than May’s 4%. But that’s still too high for comfort. Because inflation has proven to be much stickier than expected, it’s kept an upward pressure on rates.
“Mortgage rates live in the bond market, and the nemesis of bonds is inflation,” said Kevin Martini, certified mortgage advisor at Martini Mortgage Group. “The Fed’s actions will get inflation under control, and when that happens, mortgage rates will move lower.”
However, the Fed’s interest rate hikes and the high-inflation environment aren’t the sole influence behind elevated mortgage rates. Mortgage rates are also affected by other macroeconomic factors, a combination of market conditions, investor confidence and global events.
Expert advice for homebuyers
Higher mortgage rates mean it’s more difficult to afford a home now, but the reduced demand also means less competition.
“I think the smarter buyers will be making a value play buying now, as compared to when rates drop and everyone jumps back into the market,” said Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage.
Still, don’t rush into a major purchase like buying a home without knowing what you can afford, especially with today’s higher rates. If you haven’t updated your home buying budget recently, you could be in for a rude awakening when you get a mortgage quote. (CNET’s mortgage calculator can help you figure out and prepare for monthly payments.)
“Once you are sure you want to own a home, be patient and realistic about what you can afford,” said Mark Fleming, chief economist at First American Financial Corporation. “It will take longer in a short-supplied market to find what you can afford.”
Consider the rent vs. own equation
The housing market shouldn’t determine if you’re getting a home -- your personal situation and financial circumstances should.
Whether it makes more sense to rent or buy a home isn’t just about comparing monthly rent to a mortgage payment. Buying a home requires thousands of dollars in upfront fees and a down payment, in addition to ongoing maintenance and upkeep costs. How long you plan to live in the area should also factor into your decision. If you sell the house in two or three years, you may not have enough equity built up to offset the fees.
Over the long term, though, buying a home can be a good way to increase your net worth, unlike with renting. When you buy, you can also lock in a fixed interest rate, which means your monthly payments won’t fluctuate compared to the rental market.
As the age-old saying goes, “Marry the home, date the rate,” meaning the rate you lock in when you take out a mortgage doesn’t have to be permanent. If rates decline in the future, you can refinance your mortgage to get a new, lower rate.
“The only direction that a mortgage payment should move is down. As homeowners may consider refinancing in the future, a renter won’t have this option on the table,” said Afifa Saburi, senior researcher at Veterans United Home Loans.
Shop around for lenders
Not all mortgage lenders are created equal. When you start looking for potential lenders, it’s a good idea to compare multiple offers at once.
Based on factors such as your credit score, debt-to-income ratio and down payment, a lender can estimate your interest rate, monthly mortgage payment and closing costs. Experts recommend getting at least three loan estimates from different lenders so you can get a true apples-to-apples comparison.
A good lender should be in tune with what’s available in your market and help you navigate your options, in addition to explaining things like how private mortgage insurance factors in.
Most importantly, it’s critical to work with a reputable and preferably local lender, said Alix Nadi from Re/Max Around Atlanta Realty. “They are the only ones who can give definitive answers regarding what the buyer qualifies for, what those payments look like and what costs are associated with the purchase,” Nadi said.
This article originally appeared on CNET