Will Mortgage Rates Ever Drop Again? Here’s What You Need to Know
If you’ve been holding off on buying a home because mortgage rates feel sky-high, you’re not alone. A lot of people are asking the same thing right now: Are mortgage rates ever going back down? The short answer? Probably yes. But the long answer involves a mix of inflation, Federal Reserve strategy, tariffs, and recession cycles. Let me break it all down.
What’s Keeping Mortgage Rates So High?
Mortgage rates today are elevated, hovering well above the 5% mark we got used to a few years ago. The two biggest factors keeping them up? Time and recession.
Let’s start with inflation. Inflation has cooled from its recent peak, but it’s still higher than the Federal Reserve’s goal of 2%. Until we get closer to that target, the Fed is keeping interest rates higher for longer. That’s directly impacting mortgage rates, since they tend to move in sync with the Fed’s policies and inflation outlook.
Then there’s tariffs. If new or increased tariffs kick in—especially around the key date of July 8—they could add to inflation pressures by making imported goods more expensive. That, in turn, gives the Fed more reason to keep rates high to fight inflation.
And finally, who’s in charge matters. Jerome Powell, Chair of the Federal Reserve, has kept a firm stance on managing inflation, but his term ends in May 2026. If his replacement favors rate cuts, we could see a shift sooner—especially if economic data justifies it.
What Exactly Does the Federal Reserve Do?
Let’s clear up a common misconception. The Federal Reserve isn’t a typical government agency or bank. It doesn’t have vaults of cash or take deposits. Its main job? Managing interest rates and controlling the money supply.
It does this by influencing the federal funds rate, which is the rate banks charge each other to borrow money overnight. This trickles down into the retail interest rates we all care about—mortgages, auto loans, credit cards, and more.
Historically, the Fed slashes rates during recessions. We saw this in 2001 after the dot-com bust, in 2008 during the financial crisis, and in 2020 during the COVID-19 crash. Each time, lower rates encouraged people to borrow and spend, giving the economy a much-needed jolt.
Will a Recession Help Lower Rates?
Yes—eventually. Recessions almost always lead the Fed to cut rates, and that’s when we tend to see mortgage rates fall. The U.S. has had 16 recessions in the last 100 years—an average of more than one per decade. While we can’t predict exactly when the next one will hit, it’s a safe bet that it will happen. And when it does, expect mortgage rates to follow suit—though don’t expect them to fall to zero, even if the Fed funds rate does.
What’s the Fed Watching Right Now?
The Fed watches a lot of things, but the big three are:
- Inflation – Still too high.
- Jobs – Despite public frustration, unemployment is statistically low.
- Tariffs and global trade – Could worsen inflation.
So right now, the Fed sees a relatively strong job market and sticky inflation, which means it’s not in a rush to cut rates. But that could change quickly if economic conditions shift.
What Should You Do in the Meantime?
Here’s the truth: the system isn’t built to benefit the financially uneducated. Institutions profit when people rack up debt, especially during low-rate periods. But you don’t have to play that game.
Instead:
- Buy a home you can afford now, not one you hope to refinance later.
- Don’t assume a rate drop is around the corner—plan for today, not someday.
- Treat your home as a liability, not an investment, and avoid over-leveraging your future.
Want to Stay Smart About Your Money?
If you want to keep your finger on the pulse of the economy, Market Briefs is a free daily newsletter that breaks down the housing market, stocks, crypto, and more in easy-to-read, no-fluff emails. You’ll also get access to a free investing masterclass and insights to help you find opportunities in any market—bull, bear, or stuck-in-the-middle.
Mortgage rates will go down eventually—but whether that happens in six months or three years depends on forces most of us can’t control. What you can control is your financial literacy, your debt, and the decisions you make today.
Jaspreet Singh is not a licensed financial advisor. He is a licensed attorney, but he is not providing you with legal advice in this article. This article, the topics discussed, and ideas presented are Jaspreet’s opinions and presented for entertainment purposes only. The information presented should not be construed as financial or legal advice. Always do your own due diligence.
