Mortgage Rate Predictions for July and Beyond: Interest Rates Likely to Stay Higher for Longer

The average 30-year fixed-mortgage rate fluctuated between 6.5% and 7% throughout most of June. Experts expect more of the same in July. 

Inflation is showing signs of easing, leading the Federal Reserve to pause interest rate hikes — for now. Depending on future inflation data, the Fed could likely push for additional rate increases in the coming months. 

Here’s what experts have to say about July’s mortgage rate trends and what you can do. 

Experts predict: What will happen with mortgage rates in July?

“Hopes for rates to come down seem to be dashed,” said Mark Fleming, chief economist at First American Financial Corporation. Fleming noted that the Fed’s hint of future rate increases puts a bit more upward pressure on mortgage rates later this year. 

Other experts agree. Afifia Saburi, senior researcher at Veterans United Home Loans, noted that mortgage rates follow the direction of the benchmark set by the Fed. “The market’s expectations for interest rates to remain higher for longer could result in elevated mortgage rates,” she said. 

What’s more, the fight against inflation isn’t over yet, and if the Fed continues to raise rates, it will delay any meaningful movement in the rate market, according to Sarah Alvarez, vice president of mortgage banking at William Raveis Mortgage. While it’s predicted that we could still end the year with slightly lower rates, “it is too soon to say when we will see the significantly lower rates everyone is hoping for,” Alvarez said. 

What is affecting mortgage rates right now?

The surge in mortgage rates over the past year is due to a variety of economic factors, though  persistently high inflation is a big one. May’s inflation report showed prices for consumer goods up 4% year over year, which was lower than April’s 4.9%. But that’s still too high for comfort — the Federal Reserve has a 2% target for inflation. 

Another important driver behind mortgage rates has been interest rate hikes by the Fed. While the Fed doesn’t directly set mortgage rates, its policy changes and forecasts for the economy do play an influential role. 

To tame inflation, the Fed began hiking its benchmark federal funds rate — a short-term interest rate that determines what banks charge each other to borrow money — in March 2022. During its last meeting in June, the central bank opted to skip another rate hike in response to signs of cooling inflation. However, the Fed’s recent decision to lift its foot from the gas pedal doesn’t mean we’ve seen the last of rate hikes in 2023. 

The average rate for a 30-year fixed mortgage may land close to 6.3% by the end of 2023, according to the most recent housing forecast from Fannie Mae. Though earlier forecasts had called for mortgage rates to slide below 6%, inflation has proven to be much stickier than expected, keeping an upward pressure on rates. 

“Mortgage rates live in the bond market, and the nemesis of bonds is inflation,” said Kevin Martini, certified mortgage advisor at Martini Mortgage Group. “The Fed’s actions will get inflation under control, and when that happens, mortgage rates will move lower.”

While the Fed is unlikely to cut rates anytime soon — likely not until 2024 at the earliest — experts say a pause in rate hikes should allow for mortgage rates to stabilize between 6.5% and 7.0%. 

Higher interest rates forced the housing market into a difficult “correction” that should bring it into balance after years of exuberant demand and limited supply. The fact that home prices and mortgage interest rates are stabilizing could be signs that the housing market correction is over, Fleming said. “I see the light at the end of the tunnel,” he said.  

Expert advice for homebuyers

Higher mortgage rates mean it’s more difficult to afford a home now, but the reduced demand also means less competition.

“I think the smarter buyers will be making a value play buying now, as compared to when rates drop and everyone jumps back into the market,” Alvarez said. 

Still, don’t rush into a major purchase like buying a home without knowing what you can afford, especially with today’s higher rates. If you haven’t updated your home buying budget recently, you could be in for a rude awakening when you get a mortgage quote. (CNET’s mortgage calculator can help you figure out and prepare for monthly payments.) 

“Once you are sure you want to own a home, be patient and realistic about what you can afford,” Fleming said. “It will take longer in a short-supplied market to find what you can afford.”

Consider the rent vs. own equation

The housing market shouldn’t determine if you’re getting a home — your personal situation and financial circumstances should. 

Whether it makes more sense to rent or buy a home isn’t just about comparing monthly rent to a mortgage payment. Buying a home requires thousands of dollars in upfront fees and a down payment, in addition to ongoing maintenance and upkeep costs. How long you plan to live in the area should also factor into your decision. If you sell the house in two or three years, you may not have enough equity built up to offset the fees. 

Over the long term, though, buying a home can be a good way to increase your net worth, unlike with renting. When you buy, you can also lock in a fixed interest rate, which means your monthly payments won’t fluctuate compared to the rental market. 

As the age-old saying goes, “Marry the home, date the rate,” meaning the rate you lock in when you take out a mortgage doesn’t have to be permanent. If rates decline in the future, you can refinance your mortgage to get a new, lower rate.

“The only direction that a mortgage payment should move is down. As homeowners may consider refinancing in the future, a renter won’t have this option on the table,” Saburi said.  

Shop around for lenders

Not all mortgage lenders are created equal. When you start looking for potential lenders, it’s a good idea to compare multiple offers at once. 

Based on factors such as your credit score, debt-to-income ratio and down payment, a lender can estimate your interest rate, monthly mortgage payment and closing costs. Experts recommend getting at least three loan estimates from different lenders so you can get a true apples-to-apples comparison. 

A good lender should be in tune with what’s available in your market and help you navigate your options, in addition to explaining things like how private mortgage insurance factors in.

Most importantly, it’s critical to work with a reputable and preferably local lender, said Alix Nadi from Re/Max Around Atlanta Realty. “They are the only ones who can give definitive answers regarding what the buyer qualifies for, what those payments look like and what costs are associated with the purchase,” Nadi said.

See the full article on mortgage interest rates, or, read more Arizona real estate investing news.