Can We Expect Mortgage Rates to Drop to 5% Again Soon?

Mortgage Rates Have Been All Over the Place

If you've been trying to buy a home lately, you've probably noticed that mortgage rates keep bouncing around. Earlier this year, the average 30-year fixed mortgage rate dropped below 6% for the first time since 2022.

But then conflict in Iran pushed rates back up toward 6.5%. Shortly after, rates dipped below 6% again, only to rise once more.

This up-and-down pattern makes it really hard for people to plan when to buy a home.

Why Even Small Rate Changes Matter

You might think the difference between a 5% and 6% mortgage rate isn't a big deal. But in reality, that 1% difference can add up to hundreds of extra dollars on your monthly payment for a typical home.

Right now, the average 30-year fixed mortgage rate sits just under 6.5%. The Federal Reserve has kept its main interest rate between 3.50% and 3.75% as inflation continues to be a concern.

Most experts expect the Fed to leave rates unchanged at its June meeting, which adds even more uncertainty to the housing market.

Will Rates Drop to 5% Anytime Soon?

The short answer: probably not in the near future.

Three financial experts shared their thoughts, and none of them expect rates to fall close to 5% anytime soon.

Heather Long, chief economist at Navy Federal Credit Union, explained: "I don't see the 30-year mortgage rate dropping close to 5% again in the foreseeable future. If the war in Iran ends, rates might get back to around 6%. But the longer the war continues, the longer inflation sticks around, and government defense costs go up. That keeps borrowing costs high for homes and everything else."

Melissa Cohn, regional vice president of William Raveis Mortgage, agreed that global conflicts are playing a major role. "Only when the war in Iran is over can we set any sort of timeline," she said. "The damage to mortgage rates has been significant due to the war."

JD Pisula, CEO of Accolade Advisory, pointed out that mortgage rates closely follow the 10-year Treasury yield. Treasury yields have risen recently because stubborn inflation makes it less likely that the Fed will cut rates. Global tensions add even more uncertainty.

"Unless we see a global recession that forces interest rate cuts, it's hard to imagine 5% mortgage rates returning within the next couple of years," Pisula said.

What Would It Take to Get Back to 5% Rates?

Experts say several things would need to happen for rates to drop that low:

• The conflict in Iran would need to end
• Oil prices would need to fall by more than 40%
• Inflation would need to settle below 2.5%
• The economy would need to slow down enough for bond yields to drop to around 3.50%

According to Long, getting back to 5% rates would likely require either a recession or a major boost from artificial intelligence technology that produces stronger growth and lower inflation than normal.

Be aware that these changes could take months or even years to play out.

Should You Wait for Lower Rates?

If you're hoping to buy a home but waiting for 5% rates, you might be waiting a long time. And there's no guarantee rates will drop—they could just as easily go up.

"It's always impossible to time the market," Cohn said. "If you are looking to buy, find the right home at the right price and then find the best rate available."

Remember, if you buy now and rates drop later, you can always refinance your mortgage.

Pisula also suggested considering an adjustable-rate mortgage (ARM) as an option. "Many homebuyers stay in their homes for less than 10 years," he noted. "An ARM can give you a lower rate today, with the option to refinance in the next five to seven years."

The Bottom Line

Mortgage rates might drop closer to 5% by 2026, but a lot of things would have to go right for that to happen. Waiting for the perfect rate could end up costing you more if rates rise instead of fall.

For many buyers, the smartest move is to shop around now. Rates vary from lender to lender, so getting quotes from multiple sources could help you find a better deal than you expected.

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