For years, homebuyers and homeowners have been holding onto the hope that mortgage rates might return to the historically low 3% range. If you've been waiting for that magical number to come back before making a move in the real estate market, it's time to adjust your expectations. We heard from Dr. Mark G. Dotzour, a real estate economist who says those days are behind us, and the reality is that mortgage rates will likely stabilize closer to 6% for the foreseeable future. Here’s what we learned from him—and what that means for buyers and sellers moving forward.
The 3% Mortgage Rate Was a Temporary Market Anomaly
To understand why 3% mortgage rates are unlikely to return, it's important to recognize how they happened in the first place. The ultra-low mortgage rates of 2020 and 2021 weren’t a natural market condition; they were the result of emergency Federal Reserve policies designed to prevent economic collapse during the COVID-19 pandemic.
During that time, the Fed slashed interest rates to near zero and aggressively purchased mortgage-backed securities, effectively flooding the market with cheap money. This intervention artificially drove mortgage rates down to levels never seen before. However, as Dr. Dotzour pointed out, “That should have never happened.” It was a short-term policy response—not a new normal.
What’s Keeping Mortgage Rates Higher Now?
Today, the economic landscape looks very different:
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Inflation Remains a Factor – The Federal Reserve has been battling inflation since 2022. Although inflation has cooled from its peak, it remains above the Fed’s 2% target. Higher inflation makes investors demand higher returns on long-term bonds, which in turn keeps mortgage rates elevated.
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Government Debt & Spending – The U.S. government is running massive budget deficits, borrowing trillions of dollars annually. As national debt grows, so does the cost of borrowing money, leading to higher interest rates across the board.
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Labor Market & Wage Growth – Wages have been rising due to labor shortages and union negotiations. While this is good for workers, it contributes to inflation, making it harder for mortgage rates to decline significantly.
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Federal Reserve Policy Shift – Unlike in 2020, the Fed is no longer purchasing mortgage-backed securities at scale. Instead, it is reducing its balance sheet, which limits liquidity and keeps borrowing costs higher.
The New Normal: 6% Mortgage Rates
Rather than hoping for a return to 3%, experts like Dr. Dotzour predict that mortgage rates will settle in the 5.5%–6.75% range over the next few years. Historically speaking, this is closer to normal than the artificially low rates of 2020–2021.
In fact, before the Great Recession, mortgage rates regularly hovered between 5% and 7%, and the housing market functioned just fine. The only difference now is that buyers and sellers need to adjust their expectations and financial strategies accordingly.
What This Means for Buyers & Sellers
For Buyers:
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Buy Now If You Can Afford It – If you’re financially ready to buy a home, waiting for lower rates might not be the best strategy. Home prices are likely to rise as demand remains strong, and you could miss out on equity growth by waiting.
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Adjust Your Expectations – If you were hoping for a 3% mortgage to buy a larger home, it might be time to reconsider your budget and focus on a home that fits within your means at today’s rates.
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Consider Rate Buydowns & ARM Loans – Some lenders offer programs where sellers can help “buy down” your rate for the first few years, or you could explore adjustable-rate mortgages (ARMs) that offer lower initial rates.
For Sellers:
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Don’t Wait for Rates to Drop – Many sellers are hesitant to list their homes because they don’t want to trade their low-rate mortgage for a higher one. However, inventory remains low, and well-priced homes are still selling.
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Price Realistically – Overpricing your home in hopes that rates will drop and buyers will flood the market again is a risky move. Work with an experienced real estate professional to price your home competitively.
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Offer Incentives – If you need to attract buyers, consider offering seller concessions such as rate buydowns or covering some closing costs to make your home more appealing.
The Bottom Line
While the 3% mortgage rate era was a gift to many homeowners, it was never meant to last. The economic forces at play today make it highly unlikely that we will see those rates again unless there is another major financial crisis—which no one wants. Instead of waiting for the impossible, buyers and sellers should adapt to the current market, make informed decisions, and move forward with confidence.
If you have questions about how today’s mortgage rates impact your real estate goals, let’s connect and find the best strategy for you in this new market reality.
-Trigaci Stiles Group
