When will mortgage rates go down? Experts reveal how long you need to wait to buy a house

Mortgage rates in the US have soared in recent years with the highest 30-year rates seen in more than two decades. 

Due to inflation, the Federal Reserve has raised interest rates to cut down on spending, all while mortgage rates have climbed along with it. 

From 2022 to 2023, the Central Bank increased its benchmark federal funds rate- the rate at which banks borrow money from each other- 11 times, making it go from zero percent to 5.25-5.50 percent, Yahoo Finance reported. 

Today, the median monthly mortgage rate on a new home is $2,256, about seven percent higher than last year, according to Mortgage Bankers Association. 

Though it is unclear when exactly mortgage rates will decline, two mortgage companies, Fannie Mae and Mortgage Bankers Association, have predicted that the high prices could gradually fall by the end of 2025.   

The high rates have sparked caution amongst homeowners looking to sell and buyers looking to purchase a new home in today's economy. 

'Homebuyer affordability conditions declined further as mortgage rates remained above 7 percent in April, sidelining many prospective buyers from entering the housing market,' Mortgage Bankers Association Vice President Edward Seiler, said. 

'In addition to lower mortgage rates, more housing inventory is desperately needed in markets throughout the country this summer to alleviate these tough affordability conditions.' 

As of quarter three- from July to September of this year- 30-year mortgage rates are estimated to be at 7.1 percent, but by then of quarter four of next year- October to December- the rates will drop to 6.6 percent, according to Fannie Mae. 

Mortgage Bankers Association revealed that during quarter three of 2024 30-year mortgage rates are expected to be at 6.7 percent, and by the end of 2025, that will decrease to 5.9 percent. 

Experts have warned that the only way to see mortgage rates drop is to see inflation costs fall as well. 

'In order to see rates improve, we need to see inflation numbers decreasing, new job creations slow down, and potentially unemployment filings to increase,' Evan Luchaco, a home loan specialist at Churchill Mortgage said. 

Luchaco believes that costs could start to go down by the end of this year, but he is not completely positive. 

'These are all economic signs of a slowdown that will spur the Fed to take action in lowering the Fed funds rate, which will have a trickle-down effect to lower mortgage rates,' he said. 

Jennifer Beeston, a senior vice president of mortgage lending at Guaranteed Rate also believes that the only way mortgages could drop is if inflation goes down with it. 

'In order for rates to come down, we need to see inflation ease,' Beeston told Yahoo Finance. 

'Based on current economic predictors, that looks like potentially fall; however, all the predictions have been wrong for the last two years.' 

Although rates are expected to drop in the next year, experts do not believe that they will reach three or four percent like they did during the COVID-19 pandemic. 

Neil Christiansen, a home loan specialist at Churchill Mortgage, believes that the only way mortgagee rates will decline is if America goes into a 'deep recession.' 

'If the Fed sees the economy slowing and stalling, then they could cut rates drastically to jump-start it, but the way things are going, I don’t see a significant cut in rates anytime soon,' Christiansen said. 

With the looming uncertainty of mortgage rates, Beeston has suggested that both buyers and sellers crunch numbers to determine when they should get into the market. 

'For people waiting for rates to come down, I often show the payment now versus a percent lower,' she said. 

'The impact of a rate drop on your payment is far more dramatic at a $1 million purchase than a $100,000 one.' 

Luchaco has warned that even though mortgage rates might decline, home prices are not expected to. 

He added that if many people get into the market because of the possible lower rates, the demand will cause house prices to soar. 

For people that are currently renting, experts have suggested that if you can qualify for a mortgage rate and find a payment you can afford, then you should consider entering the market. 

Buying a home sooner can also give people the chance to refinance later on if rates end up decreasing.  

'Home prices continue to increase at 5% to 6% year over year, and with the loss in appreciation and loan pay-down, the longer the buyer waits, the more they lose the opportunity to improve their net worth,' Christiansen said. 

A little-known tactic can help keep costs down and make ownership more affordable.

By shopping around for an 'assumable mortgage', buyers can find a house with an existing set low rate and have the mortgage transferred into their name, sometimes saving them thousands of dollars a month.

An estimated 23 percent of active mortgages are assumable, according to data firm Intercontinental Exchange - but not all buyers are qualified to take one over.

Property search companies are starting to tag homes with assumable mortgages and many of them have rates as low as two percent, less than half the current average of 7.09 percent on 30-year-fixed loans.