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How long before interest rates drop?

Where are Interest Rates Headed

Mortgage rates have been a popular topic over the past two years, as buyers and sellers alike have been tracking their fluctuation, which has been more of an upward trend, as we all well know. In Manhattan however, it seems that rising mortgage rates haven’t hindered sales activity, particularly in the luxury market, as two-thirds of the transactions in Q2 were all cash—the highest market share of cash transactions in history—according to Jonathan Miller.

Nevertheless, what’s interesting is that although interest rates slightly pulled back just recently, mortgage applications fell 2 percent for the week and were down 28 percent from the prior year for that same week. In fact, mortgage demand has dropped to a 27-year low. It’s likely that prospective buyers who require home financing are continuing to hold out to see what the market does, not to mention inventory remains low.

As I’ve mentioned before, homeowners have been hesitant to sell due to mortgage rate lock-in. A majority of borrowers today have loans with rates below 4 percent and do not want to take on a higher interest rate—one of the reasons inventory has been lower than normal.

Yet there is hope on the horizon. In a recent CNBC interview, Zillow Co-Founder Spencer Rascoff said that we’re likely at peak mortgage rates in the low 7’s right now, and that we should start to see them slowly come down. In fact, Rascoff says most experts are expecting that we will see rates back in the 6’s by spring and possibly the 5’s by summer next year.

Our Chief Economist Greg Heym also just reported last week that the recent job market data looked favorable from the Fed’s perspective and chances are that rates will not be increasing anytime soon. This is all encouraging news, and we shall wait to see how things unfold over the next 6 to 12 months.


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