: When will mortgage rates go down? Brace yourself, economists warn house hunters that rates of 7% may be the ‘new normal.’

United States

When will mortgage rates go down? And will they go down anytime soon?

“Anyone forecasting mortgage rates needs to have a lot of humility,” Ali Wolf, chief economist at Zonda Research, a housing market-research platform, told MarketWatch in an interview on the Barron’s Live podcast.

“You’re basically trying to forecast what happens to the 10-year, what happens to the Fed, what happens to inflation… all of those assumptions have to be right for your mortgage-rate forecast to be right,” she added.

Rates remain at 7.14%, as of Wednesday afternoon, according to Mortgage News Daily. That’s a 20-year high, based on historical data from Freddie Mac FMCC.

‘People will adapt.’

— Ali Wolf, chief economist at Zonda Research

Looking at where the economy is heading right now, Wolf said. In fact, Zonda expects mortgage rates to remain above 5%, and possibly going up to 8%.

“That could be wrong,” Wolf stressed, “because our model doesn’t really have many examples of inflation being this high and quantitative tightening and the changes to the short-term interest rate happening this quick.” 

Others say it’s time to get used to the new higher interest-rate environment. “When I bought my first home, our mortgage rates were 7.5%, 8%,” Christine Cooper, chief U.S. economist and managing director at CoStar Group, told MarketWatch in an interview.

“It was part of life — and now new home buyers, they’re getting a little sticker shock,” she added. “But in five, six months, or a year, we’re gonna think, that’s just normal … we’re just going through this period of transition … people will adapt.” 

Will the housing recession destabilize the economy?

Likely not, according to one expert. 

Sure, home prices may drop as demand falls, and people pull back on buying. 

“I cannot dismiss the possibility of a much larger drop in demand and house prices before the market normalizes,” Federal Reserve Governor Christopher Waller said during an event on Thursday. 

But he added that he wasn’t worried that a correction would trigger a wave of defaults and destabilize the economy like the last recession. 

“Because of relatively tight mortgage underwriting in the 2010s, the credit scores of mortgage borrowers today are generally higher than they were prior to that last housing correction,” he explained. 

“Also, the experience of the last correction taught us that most borrowers only default when they experience a negative shock to their incomes in addition to being underwater on their mortgage,” Waller added.

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com