FINANCE
What have the experts at the World Bank said will happen to mortgage rates in future?
While the World Bank anticipates mortgage rates will eventually decline as inflation is brought under control, the path to lower borrowing has yet to found.
Current mortgage rates in the US are hovering around 7% for a 30-year fixed loan, levels not seen since the housing crisis of 2008. These elevated rates are a direct consequence of the Federal Reserve’s aggressive monetary policy tightening to combat stubbornly high inflation.
Inflation and mortgage rates have an intrinsic relationship. When inflation rises, it erodes the purchasing power of money, prompting central banks to raise interest rates to maintain price stability.
Higher interest rates make borrowing more expensive, including for mortgages. Conversely, when inflation is low and stable, central banks can keep interest rates low, making mortgages more affordable.
World Bank’s outlook on mortgage rates
According to the World Bank’s latest Global Economic Prospects report, mortgage rates are expected to decline once inflation is brought under control. The report states that as central banks successfully rein in inflation through monetary tightening, they will eventually be able to ease interest rates, providing relief to borrowers, including homebuyers.
“By the end of 2026, borrowing rates are expected to have declined substantially as inflation returns close to target,” the global financial institution said.
However, the World Bank cautions that the path to lower mortgage rates may not be smooth. Inflation has proven more persistent than initially anticipated, and central banks may need to maintain restrictive monetary policies for an extended period to ensure a sustained decline in price pressures. This could delay the easing of mortgage rates.
The World Bank’s projections suggest that once inflation subsides and central banks can pivot to more accommodative monetary policies, mortgage rates should gradually decline. This will provide a much-needed boost to the housing market, which has been hampered by the sharp rise in borrowing costs over the past year.
Lower mortgage rates could improve affordability for prospective homebuyers. However, the extent and timing of the impact will depend on the pace of inflation’s descent and the corresponding response from the Federal Reserve.