M
ortgage rates may drop to 6% in the next couple of years, but it's difficult to predict when they will rise and fall due to their connection to the overall economy. The recent tariff wars have delayed a downward trend in mortgage rates, while a weakening labor market could send rates lower, albeit gradually.

    The real estate industry is waiting for mortgage interest rates to drop into a range that sparks homebuyer activity, but forecasting these shifts has become challenging due to their interconnection with other economic factors. Daryl Fairweather, chief economist at Redfin, notes that the biggest surprise in the past year was the impact of tariff wars on rates.

    Inflation and job market shifts are strong influences on 10-year treasury yields and mortgage rates. The impacts of Trump's tariffs continue to surprise economists, as companies have avoided passing cost increases on to consumers, instead focusing on lowering labor expenses. This has led to a weakening job market, which could send mortgage rates lower.

    Fairweather expects mortgage rates to eventually drop closer to 6%, but this process will be bumpy and may take longer than potential buyers would want. A quicker drop in rates might occur if the narrowing spread between mortgage rates and the 10-year treasury yield continues. According to Redfin's head of economics research, Chen Zhao, a low spread tends to lead to lower mortgage rates.

    Most real estate economists expect a slow but steady improvement in mortgage rates, with snags along the way. Mark Fleming, chief economist at First American, notes that the market no longer favors sellers as it did during the pandemic frenzy, making it a good time for prospective buyers who have been waiting on the sidelines.