What Is a “Good” Mortgage Rate These Days?

By Lisa Sturtevant, PhD 
Chief Economist, Bright MLS 

Freddie Mac reported that mortgage rates declined slightly during the weekend ending March 28. The average rate on a 30-year fixed rate mortgage was 6.79%, down from 6.87% a week ago. Despite the more favorable rates, applications for home purchases did not increase.  

What is a “good” rate in this market, anyway? 

Both buyers and sellers seem to be coming to terms with a rate between 6% and 7% as the new normal. Rates will come down this year, but most forecasts are for the average rate on a 30-year fixed rate mortgage to remain well above 6% over the coming months. Fannie Mae recently revised its forecasts, for example, going from a projection of rates at 5.9% by year end to a forecast of 6.4%. 

What could drive rates to decline more quickly? 

Sharply falling inflation or other signs of a weakening economy (e.g., rising unemployment) would suggest that mortgage rates would fall faster than forecasted. We will watch the economic data coming out in the coming weeks, but neither a negative jobs report nor a steep inflation drop is expected. 

About the “lock-in” effect... 

The elevated mortgage rates impact buyers, but the gap between today’s rates and the historically low rates during the pandemic also impact sellers. Recent research by the Federal Housing Finance Agency found that the so-called mortgage rate “lock-in” effect has reduced housing inventory and resulted in 1.33 million fewer home sales over the past year. 

While the lock-in effect may be true, in theory, we have actually started to see more people listing their homes and inventory begin to increase this spring. More inventory—rather than a big drop in mortgage rates—will be the key to more home sales in the coming months.