hikesterson/Getty Images; Illustration by Issiah Davis/Bankrate
After topping 8 percent in October, mortgage rates beat a hasty retreat in November. The average rate on 30-year loans fell under 7.5 percent in Bankrate’s most recent survey of lenders.
“Market sentiment has significantly shifted over the last month, leading to a continued decline in mortgage rates,” says Sam Khater, chief economist at mortgage company Freddie Mac.
One key reason for the reversal: Investors bid down 10-year Treasury yields, the main indicator for 30-year fixed mortgage rates.
Another factor is inflation, which was down to 3.2 percent for October. While that’s still above the Federal Reserve’s official target of 2 percent, forecasters think the Fed is done raising rates, a shift that will relieve some of the pressure on mortgages.
“If the Fed signals an end to interest rate hikes and takes on a dovish tone, there may be some downward pressure on mortgage rates,” says Odeta Kushi, economist at title insurer First American. “But don’t expect any large declines in mortgage rates until inflation is much closer to the Fed’s 2 percent target or there’s a decline in economic activity.”
Mortgage rate predictions December 2023
The downward momentum in mortgage rates will be sustained, albeit modestly, as the Federal Reserve signals they are done raising interest rates and projects slower inflation in 2024. Cautious projections from the Fed about the timing of rate hikes, along with the elevated volume of Treasury issuance, will be offsetting factors that limit the extent of decline in mortgage rates.
— Greg McBride, Bankrate Chief Financial Analyst
Many forecasts now call for rates to stick in the 7 percent range, either at 7.5 or higher.
“While mortgage rates have trended down from their peak in October, they remain above 7 percent and will likely stay there for some time,” says Ruben Gonzalez, chief economist at real estate brokerage Keller Williams.
As inflation cools and the Federal Reserve stands down, rates should drift down to 7 percent, says Lisa Sturtevant, chief economist at Bright MLS, a real estate listing service in the Mid-Atlantic region.
“Part of it is the Federal Reserve is pausing on interest rate hikes,” says Sturtevant. “Of course, mortgage rates are affected by things other than what the Fed does. For example, mortgage applications are down, and lenders are competing for a shrinking pool of applicants.”
Current mortgage rate trends
After rising sharply through late October, mortgage rates have trended back down. The average rate on a 30-year mortgage was 7.4 percent as of Nov. 29, according to Bankrate’s survey. This represents a departure from 8.01 percent on Oct. 25.
When will mortgage rates go down?
While the experts we talked to don’t expect rates to come down significantly this month, they do forecast an eventual easing in 2024. The Mortgage Bankers Association projects rates to fall to 6.1 percent late next year. The National Association of Realtors estimates rates will be at 6.3 percent in a year, while Fannie Mae forecasts they’ll be at 7.1 percent.
Still, mortgage rates aren’t easy to predict.
“A lot of us forecasted we’d be down to 6 percent at the end of 2023,” says Sturtevant. “Surprise, surprise, we’re not.”
One wild card has been the unusually large gap between mortgage rates and 10-year Treasury yields. Normally, that spread is about 1.8 percentage point, or 180 basis points. This year, the gap has been more like 280 basis points, pushing mortgage rates a full percentage point higher than the 10-year benchmark indicates.
“There is room for that gap to narrow,” says Sturtevant, “but I’m not sure we’ll get back to those old levels. In this post-pandemic economy, the old rules don’t seem to apply in the same ways. We’re sort of figuring out what the reset is. Investors have a different outlook on risk now than they did before the pandemic. We’re just in this weird transition economy.”
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, and if you have 20 percent, you’ll avoid 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.
- 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.