A few weeks back, a reader sent in a question potentially sparked by the recent small dip in mortgage rates: Will rates get back to 4% within the next couple of years?
My answer was simple: I didn’t believe rates would go that low in the next two years. However, at the time (a mere three weeks ago), I did think there was a chance rates could drop below 5% within the next five years.
I reasoned that the Federal Reserve would hold the federal funds rate steady for now and start cutting in March, a scenario many analysts were expecting. That would help push mortgage rates lower over time.
But recent developments have me rethinking my position. First, the Fed signaled that although it is still contemplating reducing the federal funds rate this year, the first rate cut will happen later than everyone had anticipated. Then, there was talk that the Fed could instead decide to resume rate increases since the economy was doing much better than expected, and that could reverse the recent downward rate trend.
Finally, this week we had a report showing that the January inflation rate was higher than anticipated. Needless to say, hopes of an early-in-the-year Fed rate cut were definitely dashed at that point.
Since I had been so (wrongly) optimistic in my initial assessment, I decided to get an expert’s take on the chances of seeing rates that low in the next three to five years. According to Lisa Sturtevant, chief economist at Bright MLS, there’s “virtually no chance that mortgage rates will go as low as 4%” in that time frame.
The only way rates could fall that much within a relatively short period of time is if the economy sank into a deep recession, Sturtevant tells me. And with a strong jobs market and inflation slowly (okay, very slowly) coming back under control, that situation is highly unlikely in the near future. Instead, she says, “We are in a new era for mortgage rates, where rates around 6% will be the norm.”
So for any prospective homebuyers out there waiting for rates to drop to make a move, you might be waiting for a while.
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