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The mercury in your thermometer’s going up, and mortgage rates are also climbing, creating an uncomfortably hot and sticky situation for prospective homebuyers.
Currently, the benchmark 30-year fixed mortgage rate is treading close to 6 percent. That’s a steep increase from where rates were 12 months ago, when the average 30-year fixed-rate mortgage could be had for just over 3 percent.
If you’re sweating that jump, you’re not alone. Here are expert takes on what to expect for mortgage rates this month and later this year.
July mortgage rate predictions
In the near term, don’t expect much relief in the form of lower rates this month. You can thank inflationary pressure for that.
“Inflation issues persist, so expect mortgage rates to tick a bit higher from current levels,” says Greg McBride, chief financial analyst for Bankrate. “The 30-year fixed rate will hover near 6 percent, and the 15-year fixed near 5.1 percent, in July.”
“I think mortgage rates will stay relatively steady over the next month, with rates on the 30-year mortgage ranging between 5.75 percent and 6 percent, and rates on the 15-year mortgage hovering around 5 percent,” says Rick Sharga, executive vice president of Market Intelligence for ATTOM Data Solutions. “Rates have risen much more rapidly than most industry analysts and economists had initially forecast. They may settle down for the next few weeks while the market finds out what impact actions by the Federal Reserve have had on inflation and the overall economy.”
Still, rates might exceed 6 percent, says Nadia Evangelou, director of Forecasting for the National Association of Realtors (NAR). They did briefly in the lead-up to the Federal Reserve’s rate hike announcement in June, but have backed off some since. The Fed’s next meeting and subsequent rate decision takes place at the end of this month.
“Mortgage rates will surpass 6 percent in July,” says Evangelou. “As inflation will continue to run above 8 percent, the Federal Reserve will raise its short-term interest rates again by 75 basis points this month. These two factors will push up mortgage rates even further. Thus, I expect the 30-year fixed mortgage rate to average about 6 percent and the 15-year fixed mortgage rate about 5.1 percent in July.”
Higher mortgage rates ahead
Peering ahead to the end of the third quarter of 2022, there likely won’t be a drop in rates, in part due to the Fed’s efforts to combat inflation. While the Fed’s decisions don’t directly affect fixed mortgages, there is a knock-on effect in the home loan market. Between July and September, expect rates to keep rising, albeit more slowly, with averages somewhere between 6 percent or 6.25 percent, says Sharga — of course, barring any major reversals of trend.
“As we enter the fourth quarter, it wouldn’t be a surprise to see rates slightly higher, perhaps between 6 percent and 6.25 percent for 30-year loans and between 5 percent and 5.25 percent for 15-year loans,” says Sharga. “The most likely scenario seems to be that the Fed will need to continue raising the fed funds rate to tame inflation and will continue to unwind its position in the mortgage-backed securities market. Both of these actions will put upward pressure on mortgage rates.”
The ongoing conflict in Ukraine continues to compound issues, as well.
“The war in Ukraine continues to add to inflationary pressures, making it even more difficult for the Fed to slow down inflation,” says Evangelou.
If consumer prices were to cool down, however, there’s a chance rates could dip lower than expected.
“At the point we start to see sustained, unmistakable evidence that inflation has peaked and an economy that is quickly slowing, mortgage rates could drop in a hurry,” says McBride. “They won’t go back to 3 percent, but we could see a reversal of some of the rapid rise seen so far in 2022.”
For now, Evangelou’s outlook calls for rates to rise even further in the second half of 2022 — but “I don’t expect to see the same sharp increases that the market experienced in March and April. Mortgage rates will continue to rise but at a slower pace. That’s because rates seem to have already priced in some of the effects of the upcoming Fed’s rate hikes.”
When the Federal Reserve raised its short-term interest rates in March, mortgage rates surged about 80 basis points in the following three weeks, says Evangelou. Consequently, the 30-year fixed mortgage rate rose from 3.85 percent to 4.67 percent by the end of March.
When the Fed raised rates again more aggressively in May, however, mortgage rates only jumped by less than 20 basis points, eventually falling to 5.1 percent in late May.
“Thus, the data show that the effect of the Fed’s rate hike on mortgage rates was smaller in May than in March,” says Evangelou. “Hence, I expect the 30-year fixed mortgage rate to be near 6.2 percent at the end of September, climbing possibly to 6.5 percent by year’s end.”
Aside from inflation and the Fed’s response to it, keep an eye on bond yields, says Sharga. The bond market has been more volatile than usual in recent weeks, with yields on the 10-year U.S. Treasury jumping to 3.49 percent in mid-June before retreating to slightly over 3 percent. Since the 30-year mortgage is tied closely to yields on the 10-year U.S. Treasury, another spike there could result in higher mortgage rates.
What’s the right move now?
If you’re a first-time homebuyer, your purchasing power’s on the line — but that doesn’t mean you have to enter the fray.
“With affordability stretched as far as it is due to soaring home prices and the highest mortgage rates in 13 years, first-time buyers might be better holding off rather than getting too far out over their skis,” says McBride. “Young, upwardly mobile buyers may find their incomes grow faster than home prices over the next two to three years, enabling them to better transition into homeownership in a more balanced market.”
However, “if you find a house you can afford, it’s probably still a good time to take the plunge,” says Sharga. “If mortgage rates go down in a year or two, there’s always a chance you can refinance to a lower rate at that time.”
One bright spot? There are about 75,000 more homes available for sale today for buyers earning $200,000 or more, with inventory up 13 percent since January, according to NAR.
“While it is promising to see more homes available in the market, more entry-level homes are needed,” says Evangelou. “The fact remains: Higher mortgage rates hurt affordability, and middle-income homebuyers can afford to buy fewer homes. Compared to the beginning of the year, homebuying today costs about $800 extra every month. Nearly 20 percent of households no longer earn the qualifying income needed for a median-priced home.”
For homeowners still kicking around the idea of a refinance, you might need to take a seat on the sidelines for now.
“There are probably very few borrowers who would benefit from refinancing at today’s rates,” says Sharga, “but tapping into your equity to pay down higher-interest debt — including credit card debt — or make improvements to a home are valid reasons for someone to currently consider a refinance loan or even a home equity line