Housing Market Prediction for This Month

Housing experts say mortgage rates are likely to hover in the 7 percent range in May, amid elevated inflation that is keeping the Federal Reserve from reducing borrowing costs.

The high cost of home loans may keep buyers at bay as they await the decline of rates before they can make the leap toward homeownership.

The Federal Reserve raised interest rates starting in March 2022 to its current two-decade high of 5.25 to 5.5 percent, a move geared to fight soaring inflation. This contributed to the push-up of borrowing costs, including for home loans. Inflation is still struggling to cool down to the 2 percent central bank target, which has forced policymakers to retain the high interest rate environment.

The 30-year fixed rate, for the week ending April 19, rose for the third week in a row to 7.24 percent—the highest level since November 2023.

The Context

Economic data, particularly around inflation, have come in higher than expected over the last few weeks. In March, inflation jumped to 3.5 percent on a yearly basis, up from 3.2 percent the prior month.

Unless inflation surprises in the coming weeks, mortgage rates are likely to stay in the 7 to 7.5 percent range, according to Realtor.com’s chief economist Danielle Hale. Fed policymakers are set to conclude their latest meeting on May 1, and they are unlikely to change their current stance on rates.

“Of all the data, I think that the inflation, specifically the [Consumer Price Index] out May 15, will have the biggest impact,” Hale told Newsweek. “Inflation and labor market data has come in higher and hotter than expected. This change in the data, which is driving a change in the outlook, has pushed interest rates, including mortgage rates, higher across the board.”

High mortgage rates will depress buyers’ ability to buy homes.

“I expect homebuyers to approach the housing market more tepidly, and sales will reflect that trend,” Hale told Newsweek.

Views

Orphe Divounguy, a senior economist at Zillow Home Loans, echoed Hale’s perspective on what will drive mortgage rates as inflation remains elevated.

“The fact that government borrowing remains high relative to demand for U.S. Treasury bonds is likely to continue to push yields—which mortgage rates follow—elevated,” he told Newsweek. “Looking into May, we can expect more rate volatility as investors and the Fed wait for more conclusive evidence of a return to low, stable and more predictable inflation.”

Buyers are still likely to be waiting for rates to fall but the key to the trajectory of rates will be how inflation performs over the coming months, said Holden Lewis, a home and mortgage expert at NerdWallet.

“Inflation remains stubbornly above the Fed’s target of 2 [percent], and mortgage rates won’t fall significantly until the inflation rate consistently drops for multiple months in a row,” Lewis told Newsweek. “Potential home buyers are holding back and waiting for mortgage rates to decline. The slowdown in home sales will allow the inventory of unsold homes to increase. That won’t stop home prices from going up, but it might slow down the pace of home price increases this summer.”

What’s Next

In May, policymakers from the Fed will reveal their latest rate decision and provide insights on the trajectory of borrowing costs. Also in May, the CPI inflation data reading for April will give insight into how prices are performing, which will give a signal to how rates might unfold over the next few weeks.

For the housing market, one silver lining may come from buyers who have to acquire homes due to personal situations.

“Purchases are likely to be dominated by movers who feel like they don’t have a choice to wait out higher rates, but rather, they have to move now for personal reasons,” Hale said.

Zillow’s Divounguy suggested that with mortgage rates expected to stay high, lower-priced homes could see escalated competition.

“We continue to expect significant competition this spring, especially for attractive listings on the lower end of the price range. New construction homes are selling well too; they’re available, and builders are offering financial incentives—such as rate buydowns and covering closing costs—to potential home buyers,” he said. “Remember, higher rates mean the home price a buyer can afford is lower, so if you’re shopping for a home in the mid-tier or lower, it’s best to assume you’ll run into some competition.”

Hale suggested that sellers, who can also be buyers, enter the housing market.

“With 80 [percent] of potential sellers having thought about selling for 1 to 3 years, it could be that higher rates are less of a deterrent this year than in the recent past,” she said.

The perspective from lenders appears to be that the 10-year treasury yields, currently at around 4.7 percent, will drop in the coming weeks to 4 percent and narrow the difference between mortgage rates and treasury rates.

“We expect the spread will tighten further by the end of 2024. The combination implies a 30-year fixed mortgage rate mostly unchanged in the coming weeks but eventually moving closer to 6.5 percent by the end of 2024,” Joel Kan, Mortgage Bankers Association’s deputy chief economist, told Newsweek.