Dim Prospects: The 3% Mortgage Rate’s Return is Unlikely

The era of low mortgage rates has come to an end, with rates remaining above 5% since April 2022. While some forecasters predict a modest decline in rates over the next year, they do not expect rates to drop below 5% anytime soon. Accepting this reality can help speed up the process of purchasing a home that meets your needs.

Various organizations, including Fannie Mae, the Mortgage Bankers Association, and the National Association of Realtors, forecast a gradual and moderate decline in mortgage rates through at least the first three months of 2024. However, none of these forecasts anticipate rates returning to the levels seen in 2020 and 2021, when the median 30-year rate was below 3%. Refinancing remains a possibility if rates substantially decrease after your home purchase.

Inflation plays a crucial role in determining mortgage rates, and economists emphasize the importance of monitoring inflation trends. Diminishing inflation could reduce mortgage rates as it hastens the end of Federal Reserve rate increases and decreases lenders’ inflation premium baked into mortgage rates. However, mortgage rates will likely stay elevated if inflation remains persistently high. Ultimately, hoping for a return to 3% mortgage rates is unrealistic, and potential homebuyers must adjust their expectations and budget accordingly.

Redfin: U.S. Home Sales Average $4,000 Lower Than Last Year

According to Redfin’s monthly Housing Market Update, the median home sale price in the U.S. has dropped by 0.9% to roughly $383,000 from the prior year. The decrease is due to a lack of available homes, which results in an imbalance between supply and demand. Compared to the record high reached in June of the previous year, the average selling price is currently $4,000 lower.

The lack of available homes for sale is driving prices higher, with new listings falling by 27% compared to last year. This contributed to an 11% decrease in the total number of homes for sale. The report suggests that homeowners hold onto their properties to maintain their relatively low mortgage rates, while high mortgage rates discourage potential buyers. Pending home sales have declined by 15%, but buyer demand still outpaces the number of available homes, keeping prices elevated.

As of June 28, the average 30-year fixed mortgage rate was 6.91%, a reduction from the previous week, while mortgage purchase applications were up 3%. Redfin’s Homebuyer Demand Index climbed to its second-highest level since May 2022, indicating a high demand for home tours and other homebuying services. Despite this, there was a 9% decrease in “homes for sale” Google searches from the prior year.

Declining Pending Home Sales: A Shrinking Trend

Pending home sales declined by 2.7% in May, according to the National Association of Realtors (NAR). While the Northeast region saw a surge in sales, three other regions experienced monthly losses, and all regions had year-over-year declines. NAR Chief Economist Lawrence Yun attributed the limited housing inventory as the main factor preventing the full realization of housing demand. He suggested that temporary tax incentive measures should focus on boosting existing-home inventory.

The pending home sales index, a forward-looking indicator based on contract signings, dropped to 76.5 in May, marking a 2.7% decrease. Year-over-year, pending transactions fell by 22.2%. Economist Ksenia Potapov noted the contrasting performance between existing-home sales, which have been struggling due to high mortgage rates and limited buying power, and new-home sales, which have shown growth alongside positive indicators like new-home construction and homebuilder sentiment. Despite the challenges, there is still considerable demand in the market, supported by a strong labor market.



Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.