If you’re a U.S. homebuyer waiting for a return to super-low mortgage rates, don’t hold your breath.
The short-lived era of 3% interest rates for 30-year fixed mortgages is over, and unlikely to return anytime soon — perhaps for decades — says Lawrence Yun, chief economist at the National Association of Realtors.
“One can never truly predict the future, but I don’t see mortgage rates returning back to the 3% range in the remainder of my lifetime,” he says.
That’s because average 30-year fixed mortgage rates of 3% or less were an anomaly related to the pandemic, lasting from about July 2020 to Nov. 2022. Historically, the rates have been closer to an average of 7% over the past 50 years, according to Freddie Mac data.
Why super-low mortgage rates won’t return any time soon
Historically low mortgage rates during the pandemic were “an exceptional measure, during exceptionally uncertain times,” says Yun.
With the pandemic came economic uncertainty not seen since the 2008 financial crisis. Fearing a prolonged recession, the Federal Reserve followed the same playbook it used in 2008, pumping money into the economy to stimulate growth.
As was the case in 2008, the Fed slashed interest rates to nearly 0%, created emergency lending programs and bought government bonds and mortgage-backed securities, otherwise known as quantitative easing.
Since mortgage rates are closely linked to the Fed’s benchmark interest rate and can be driven further down by quantitative easing, the interest on mortgages subsequently hit rock bottom at 2.67% in January 2021.
Congress also passed trillions of dollars in Covid-19 relief and stimulus spending, which helped increase U.S. national debt by roughly 30% between 2020 and 2022, according to Treasury Department data.
However, unlike 2008, the economy recovered quickly and rising inflation soon became a problem. By spring 2021, the year-over-year inflation rate had accelerated beyond the Fed’s benchmark of 2%, forcing the central bank to start raising interest rates again. And with that, mortgage rates rose too.
I don’t see mortgage rates returning back to the 3% range in the remainder of my lifetime.
As a result of inflation and current federal spending deficits, Yun doesn’t think the Fed is likely to drop interest rates down to nearly 0% again, even in the event of another financial market panic or pandemic.
Other economists who spoke to CNBC Make It agree that homebuyers shouldn’t expect a return to record-low mortgage rates in the near term.
“It’s unlikely that the Federal Reserve will respond with the same breadth and aggressiveness like it did in 2020, as the very low mortgage rates in 2020 were caused by very unique circumstances” related to the pandemic, says Abbey Omodunbi, senior economist at PNC Financial Services.
“I haven’t seen mortgages that low in over 30 years in the business,” says Dottie Herman, vice chair at Douglas Elliman. ”It’s highly unlikely we’ll see rates that low anytime soon.”
Where mortgage rates are headed
The current average mortgage rate for a 30-year fixed-rate mortgage is 6.81% as of July 6, slightly lower than its November peak of 7.08%, per Freddie Mac data.
However, many projections are expecting a steady decline over the next year or so.
- NAR forecasts an average rate of 6% by the end of 2023 and 5.6% for 2024
- Fannie Mae forecasts an average rate of 6% by the end of 2023, and 5.4% for 2024
- Mortgage Bankers Association forecasts an average rate of 5.8% by the end of 2023, and 4.9% for 2024
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