The economy experienced high volatility throughout 2020 to the first half of 2023, but has since stabilized. A surge in demand in the housing market caused home values to skyrocket after the Fed dropped the fed funds rate to zero in response to the pandemic. However, inflation began to rise uncontrollably, prompting the Fed to increase rates 11 times. Consequently, the average 30-year fixed mortgage interest rate soared to a 22-year high of 7.79% in October 2023, from 2.8% in late 2021.

Since December, mortgage rates have been relatively stable, fluctuating between 6.5% and 7%. However, there are speculations about potential rate cuts from the Fed and their impact on mortgage rates. Scott Haymore, senior vice president and head of mortgage capital markets and product management at TD Bank, believes that rate cuts are likely to happen this year as the market gains more certainty and inflation is curbed. Fed Funds futures contracts already include three rate cuts slated for the second half of the year.

Nevertheless, experts are cautious about the extent to which mortgage rates could potentially drop. While a modest decrease is expected, it is unlikely that rates will return to the 3 to 5% range that was once the norm from 2010 to 2020. This prediction indicates that potential buyers hoping for significantly lower rates may need to adjust their expectations.

Timing is crucial when considering purchasing a home in this uncertain market. Dan Green, CEO of Homebuyer.com, advises potential buyers not to wait excessively if they find a home they love and if the financing fits into their budget. While mortgage rates may be unpredictable, home values are currently stable. Green suggests that even if rates drop, it is not guaranteed that the particular home of interest will still be available.

Additionally, it is worth considering the opportunity cost of waiting. Home appreciation, on average, falls between 4 and 5% per year. If one decides to postpone buying until 2025, the potential appreciation could mean a significant increase in the home's value. For instance, a home worth $500,000 today could appreciate by $25,000 in 2025, according to industry expert Schachter.

A drop in mortgage rates can often attract more buyers into the market, intensifying competition and potentially driving up home prices. Ralph DiBugnara, president of Home Qualified and senior vice president at Cardinal Financial, predicts that if rate cuts do occur in the fall of this year, it could lead to increased buyer activity in an already housing shortage-dominated market. Consequently, while rates may be lower, prices may also rise concurrently.

As the market continues to navigate the uncertain landscape of mortgage rates and housing prices, potential buyers are advised to carefully evaluate their options and make informed decisions.