Why Experts Predict A Steady Drop In Mortgage Rates And Home Prices Are Soon To Come

As you work to build your down payment and plan for where you'll buy a home, you've likely wondered about home affordability. In recent months, it's become much more expensive to buy a home thanks to rising interest rates and high home values. Yet, some experts believe there are indications that homes will become more within reach to prospective home buyers, especially if cyclical trends follow suit. In short, home-buying costs are high, but they may fall. 

The Federal Reserve's efforts to cool the economy's inflation growth resulted in the increase of interest rates, pushing mortgage rates higher in the last year. Freddie Mac data shows that, in April of 2022, the average mortgage rate was 5.10%. As of the same data for April of 2023, rates on a 30-year, fixed-rate loan stood closer to 6.43%. That doesn't seem like a lot, but it translates into hundreds of dollars more each month, depending on the home's value. Rates haven't cooled yet, but if inflation slows and the economy continues to flounder, the next move home buyers may see is mortgage interest rates dipping back into more affordable territory.

A quick look at the market could show a rapid up-and-down movement of rates over the last few weeks. That's frustrating to home buyers who are waiting for enough of a dip to secure a lower interest rate while trying to balance limited home inventory. Timing is everything.

Sam Khater, who is the chief economist at Freddie Mac, shared the following (via the National Association of Realtors), "Incoming data suggest the housing market has stabilized from a sales and house price perspective. The prospect of lower mortgage rates for the remainder of the year should be welcome news to borrowers who are looking to purchase a home." He attributes that to the slowing of inflation, which could help allow rates to start to come down. That certainly doesn't mean interest rates will be approaching the record-breaking lows they were at just a matter of months ago, though. It could mean monthly house payments come back in line with more realistic expectations of today's borrowers, though.

While lower interest rates help to make homes more affordable, there's also the ongoing problem of high prices. In March of 2023, the median existing home price in the U.S. was $375,700, according to data from NAR. That's up just under 1% from the same time in March of 2022, though home price increases continue to differ significantly across the country. Data shows that even in some areas where home prices are typically much higher, there's a watering down of prices evident. Some people may are moving away from higher cost-of-living communities to areas noted for affordability as well.

Some home sellers are still listing their homes at values that are much higher than they would have been just a few years ago, but data doesn't reflect homes selling at those high price points like they were. That could be due to fewer people in the market buying homes because of unattainable loans and higher costs. While there's no way to know what's to come, the real estate housing market seems to offer some promise for better days ahead in terms of lower costs.