The month of June may be hot in terms of temperature, but last month also came with a cooling labor market, ultimately resulting in a drop in mortgage rates. That’s not only a welcome change for homebuyers, but also a sign that the issues with sky-high prices and inflation might finally be tempering. 

The average mortgage rate is now below 7% for 30-year fixed-rate loans, a reprieve for buyers who were facing rates over 8% just a few months ago. Still, many potential homebuyers are hoping for a more substantial drop. 

And, while it’s unlikely that mortgage rates will decline to the 3% rates that were being offered in 2020 and 2021 — or at least not anytime soon, anyway — a drop to 6% or below could be more realistic. Here’s what experts say about when that type of rate drop could be on the horizon.

Compare your top mortgage loan offers online now.

When will mortgage rates drop to 6%? Here’s what some experts predict

According to many experts, the biggest precursor to a significant drop in mortgage rates is a drop to the benchmark rate by the Federal Reserve. While a formal Fed rate cut isn’t directly tied to mortgage rates, it does have a big impact on them. 

“Mortgage rates move with the 10-year bond yield,” says Melissa Cohn, regional vice president of William Raveis Mortgage. “Cooling inflation has helped reduce bond yields, and mortgage rates are falling again. Bond yields drop when inflation drops.”

And, right now, many signs point to a Fed rate cut in the near future — especially now that inflation has been cooling. 

“Mortgage rates will drop as inflation eases and bond yields drop,” Cohn says. “More news of cooling inflation will help to bring rates down even further.”

The softening labor market and cooling inflation are also indicators of what’s to come with mortgage rates, experts say. 

Logan Mohtashami, lead analyst at HousingWire, says this has already started to happen.

“The inflation growth rate has fallen a lot last year and is slowly moving toward the Fed’s 2% target,” Mohtashami says. “Mortgage rates have fallen recently due to the softer labor market, so the Fed will be more proactive in preventing a recession. This will be good for mortgage rates.”

Investors in the mortgage-backed securities (MBS) market can also significantly affect mortgage interest rates for the consumer, Mark Worthington, an Oregon-based branch manager for Churchill Mortgage, says.

“For rates to drop lower, investors of MBS markets need to see other indicators in the market that push them toward safer securities and investments,” Worthington says. “When this happens, investors flock to the MBS markets, which should lower the mortgage rates.”

Still, the potential drop in mortgage rates may not be as substantial as some would hope. Cohn says we need more time before a drop to 6% will happen — but we could be close to that point.

“For most borrowers, mortgage rates will drop to 6% when we have at least another month of data showing that inflation is cooling,” Cohn says. “In some cases, we are already very close. I locked in a client this week on a VA loan at 6.125% with 0 points.”

Mohtashami expects labor and economic data to continue to soften, which means bond yields will drop — and mortgage rates, in turn, will follow. 

“I call it the slow dance between the 10-year yield and 30-year mortgages,” Mohtashami says. “Since 1971, they have always been a lovely couple dancing together. If bond yields head lower, mortgage rates will follow.”

Worthington says investors have to feel a need to do something else. If things are going well, they’ll continue doing much of the same. If things aren’t going great, they’ll change.

“For rates to drop below 6%, we will need to see a slowing of our economy, reductions in the other markets and Fed rate cuts,” Mohtashami says. “Until investors don’t feel safe with what they are doing now, they have no need to purchase from the MBS markets.”

Find out what types of low mortgage rates you could qualify for here.

What could make mortgage rates stay the same or go higher?

While many signs point to a Fed rate cut, there are potential factors that could cause mortgage rates to go up instead.

Cohn says “stronger employment data and inflation rising” can cause mortgage interest rates to stay the same or go up. Mohtashami agrees. 

“If the economy stays firm, the labor data doesn’t get softer, wage growth starts to pick up, and inflation picks up more, those variables can keep mortgage rates higher or head higher,” Mohtashami says.

And, investors carry a lot of weight when it comes to stability, Worthington says.

“The biggest threats to mortgage rate cuts are more inflation and continued low unemployment numbers,” Worthington says. “When mortgage rates dropped to 3% and below, it created the problem we have now, as that severe knee-jerk reaction to drive rates that low made people believe those rates were normal. When you study history and look back in time, our rates now are very close to the average over the last 54 years. We are actually in a very healthy rate environment, we just don’t recognize it relative to the record-low rates driven by the pandemic.”

The bottom line

While mortgage rates were at record lows during the pandemic, they’re unlikely to drop that low again, at least not anytime soon. Still, if you’re a homebuyer who’s paused their plans in hopes of a mortgage rate drop this year, you could be in luck. Experts say we could be on the horizon of a drop to 6%, but if you can’t wait for that to happen, you may want to look into an adjustable-rate mortgage (ARM) that offers lower rates than fixed-rate options, Cohn says.