When will mortgage rates and home prices fall?

Owning a house is a right of passage for many Americans. While buying a home was never particularly easy, in the past few years, it has become especially difficult. An unfortunate confluence of two factors has led to this difficulty: a rise in home prices and a spike in mortgage rates. 

With both of these factors working against potential homebuyers, many people are wondering when things will get better. While nothing is certain, markets do move in cycles, so there's a chance that things could shift to a better position than they are now.

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When will mortgage rates fall?

As of October 25, 2023, the average interest rate for a 30-year fixed-rate mortgage in the United States is 8.04%. That is the highest that rates have been since the Great Recession. Elevated rates make it much more expensive over the long term to buy a home — and remember, that's just the average. Potential homebuyers who already have significant debt or who have a checkered credit history may get an even higher interest rate.

Luckily, it is clear why mortgage rates have increased recently. Mortgage rates have increased over the past 18 months as the Federal Reserve has raised its benchmark interest rate to try and fight inflation. Though the Federal Reserve does not directly set mortgage rates, interest rates for mortgages tend to track alongside the rates set by the Fed.

Eventually, inflation will presumably be under control and the Fed will be able to lower rates. If that happens, there is a good chance that mortgage rates will also come down. When that will happen, however, is still up for debate.

The Fed also recently said they expect to make just two rate cuts in 2024 — fewer than the four cuts some initially expected. Still, if those two cuts go forward next year, there could be at least some reduction in mortgage rates, which would be good for potential homebuyers.

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When will home prices fall?

Believe it or not, home prices have actually already started to fall in some places. In California, for example, home prices are projected to fall by around 1.5% in 2023 compared to 2022, per a report from the California Association of Realtors — but the group expects prices to go up by 6.2% in 2024. So, there's a good chance that the small dip we've seen in housing prices in California won't continue into next year.

Part of the issue is that right now, many homeowners who secured rates closer to 3% during the pandemic are hesitant to move and get a new mortgage loan with a much higher rate. This results in a lower supply of homes for sale, which increases the competition for the available inventory, which, in turn, causes home prices to climb.

There is also a chance that when mortgage rates go down, so will home prices, as there will likely be more inventory on the market. However, some experts think the opposite will happen.

"My perspective will be that if rates go down, the prices will go way up," said Matt Teifke, a broker and co-owner of Teifke Real Estate in Austin, Texas. "If rates go down, [buyers] can afford a higher payment. It's pretty much just fact."

In short, it's unclear if or when home prices will fall — and it could be more likely that they'll stagnate rather than decline. But when or if that will happen is still unclear.

The bottom line

Buying a home is rarely a walk in the park, but right now it can feel even worse than usual. A combination of high mortgage rates and soaring home prices has led buyers to feel the pain. Many are wondering when either factor will change for the better, making it easier to find a place to call their own. 

Mortgage prices could start going down a little bit next year, as the Federal Reserve is expected to lower federal borrowing rates at some point. As for home prices, it's a bit cloudier; the expert opinions vary — and it could end up being market-dependent. 

"Trying to time up the market is something that's always going to be a guessing game," said Teifke. "There's always a tradeoff and there's never a perfect time to buy."