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Mortgage rates are at their highest point in 23 years — and unfortunately for homebuyers, most experts say they’re unlikely to fall, at least in the short term.
One key reason for the surge: The economy has recovered from the pandemic, pushing up 10-year Treasury yields, the main indicator for 30-year fixed mortgage rates. Another factor is inflation.
While inflation was down to 3.7 percent for September, that’s still well above the Federal Reserve’s official target of 2 percent. The Fed has been raising rates aggressively since last year, and keeping them high, further putting pressure on mortgages.
Mortgage rate predictions November 2023
“Rates will stick at the high 7 percent to 8 percent range for November, which is likely to be the ceiling during this housing cycle,” says Lawrence Yun, chief economist at the National Association of Realtors. “The rates should descend in 2024.”
Greg McBride, chief financial analyst at Bankrate, offers a similar outlook:
With the risk of a possible partial government shutdown still on the table for November, that won’t do anything to help the trajectory of bond yields and mortgage rates. The economy is running hot enough that rates will stay high for some time, and inflation isn’t coming down fast enough to generate a meaningful retreat in mortgage rates.— Greg McBride, chief financial analyst at Bankrate
Ken H. Johnson, a housing economist at Florida Atlantic University, points to the relationship between 10-year Treasury yields and mortgage rates.
“An oversupply of 10-Year Treasurys is developing in the market,” says Johnson. “Prices of these notes are falling which, in turn, is pushing yields up. Higher yields on the 10-year will lead to higher 30- and 15-year mortgage rates. Thus, there will be significant upward pressure on rates for the foreseeable future.”
Inflation — and the Federal Reserve’s response — are capturing the attention of Lisa Sturtevant, chief economist at Bright MLS, a listing service in the Mid-Atlantic region.
“Mortgage rates are likely to continue to rise in November, even if the Fed refrains from raising rates at their Nov. 1 meeting,” says Sturtevant. “The Fed chairman’s commentary could be important, however, as a signal of the central bank’s confidence in whether inflation can be brought down while simultaneously avoiding a recession.”
Current mortgage rate trends
Mortgage rates have risen sharply in recent months, according to Bankrate’s weekly national survey of lenders. The average rate on a 30-year mortgage was 8.01 percent as of Oct. 25 — the highest level since August 2000.
When will mortgage rates go down?
While the experts we interviewed don’t expect rates to come down this month, they do forecast an eventual easing. The Mortgage Bankers Association expects rates to fall to 6.1 percent by late 2024. The National Association of Realtors estimates rates will be at 6.3 percent in a year, while Fannie Mae forecasts they’ll be at 6.7 percent.
Sturtevant says mortgage rates will fall once the Fed is convinced it has contained inflation.
“While mortgage rates are expected to rise more in November, rates likely will come down some heading into 2024,” says Sturtevant. “Rates will ease because of reduced mortgage demand as well as continued progress on bringing inflation down.”
Johnson, meanwhile, is waiting for the Treasury market to settle down.
“Unless there is some change in the market, mortgage rates should continue to drift up in the coming months,” says Johnson.
What to do if you’re getting a mortgage now
Mortgage rates are at generational highs, but the basic advice for getting a mortgage applies no matter the economy or market.
- Improve your credit score. A lower credit score won’t prevent you from getting a loan, but it can make all the difference between getting the lowest possible rate and more costly borrowing terms. To help qualify for a conventional mortgage, you’ll generally need a score of 620 or higher. However, the best mortgage rates go to borrowers with the highest credit scores, usually at least 740. In general, the more confident the lender is in your ability to repay the loan on time, the lower the interest rate it’ll offer.
- Save up for a down payment. Putting more money down upfront can help you obtain a lower mortgage rate. Of course, lenders accept lower down payments, but less than 20 percent means you’ll have to pay private mortgage insurance (PMI), which adds costs to your loan. If you’re a first-time homebuyer and can’t cover a 20 percent down payment, there are specific loans, grants and programs that can help. The eligibility varies by program, but often are based on factors like your income and whether you’re a first-time buyer.
- Understand your debt-to-income ratio. Your debt-to-income (DTI) ratio compares how much money you owe to how much money you make, specifically your total monthly debt payments against your gross monthly income. Not sure how to figure out your DTI ratio? Bankrate has a calculator for that.
- Check out different mortgage loan types and terms. A 30-year fixed-rate mortgage is the most common option, but there are shorter terms. Adjustable-rate mortgages have also regained popularity recently.
It might seem like a bank or lender are dictating mortgage terms, but in fact, mortgage rates are not directly set by any one entity. Instead, mortgage rates grow out of a complicated mix of economic factors. Lenders typically set their rates based on the return they need to make a profit after accounting for risks and costs.
The Federal Reserve doesn’t directly set mortgage rates, but it does set the overall tone. The closest proxy for mortgage rates is the 10-year Treasury yield. Historically, the typical 30-year mortgage rate is about 2 percentage points higher than the 10-year Treasury yield. In 2023, that “spread” has been more like 3 percentage points.
Mortgage rates have jumped to 23-year highs, so not many borrowers are opting to refinance their mortgages in late 2023. However, if rates come back down in the near future, homeowners could start looking to refinance.
Deciding when to refinance is based on many factors. If rates have fallen since you originally took out your mortgage, refinancing might make sense. A refi can also be a good idea if you’ve improved your credit score and could lock in a lower rate or lower fees. A cash-out refinance can accomplish that as well, plus give you the funds to pay for a home renovation or other expenses.