Mortgage rates aren't likely to fall again until late 2023 — at the earliest

• The Fed's interest rate hikes in an attempt to cool inflation have led to a spike in mortgage rates.
• An expert says rates are likely to hover around 5% through the end of 2023.

The Federal Reserve's interest rate hikes in an attempt to cool inflation have increased the costs on car loans, credit card debt, and mortgage rates.

Although rate growth has slowed in the past few weeks, mortgage rates are still trending well above levels seen in the pandemic's early days. It's contributed to declining affordability in the housing market, and economists expect higher rates to stick around for at least another year.

According to Freddie Mac, the average US fixed rate for a 30-year mortgage came in at 5.30% this week, declining from 5.70% the previous week but still a tremendous increase from a pandemic low of 2.68% in December 2020.

The average rate on 15-year mortgages fell to 4.45%, down from the prior reading of 4.83%. However, the rate is still significantly higher than the 2.20% borrowers were dealt during the same time period in 2021.

Rate hikes coupled with soaring home prices have plummeted housing affordability by 29% over the last year — representing the steepest annual decline on record. As borrowers feel the sting in their wallets, many Americans are yearning for yesteryear.

Lien Kiefer, an economist at Freddie Mac, told Insider that predicting rate activity is a difficult task as movement depends on the economic health of financial markets. However, he believes mortgage rates aren't likely to spike in the next few weeks — but borrowers shouldn't expect a return to lows seen during the onset of the pandemic.

"Rate movement depends on Federal Reserve policy and how the market anticipates that, so it makes forecasting incredibly difficult," he said. "Given all the volatility in the market, it's hard to say how rates will behave week to week. But the risks are kind of balanced — I don't think they'll move dramatically higher or lower."

That means borrowers could see mortgage rates hover around 5% well into 2023. A Bloomberg poll of economists in mid-June found they expect the Federal Reserve to cut interest rates in late 2024.

In the meantime, while today's rates may be a substantial increase from 2020's rate environment, rates are still fairly low compared to prior historical levels.

"From a longer term historical perspective, mortgage rates are still relatively low," Kiefer said.

The reason it may seem like they're extremely high now is due to the sudden and dramatic drop experienced during 2020. At that time, the Federal Reserve purchased large amounts of treasuries and mortgage bonds to help stabilize the economy. It resulted in the 30-year fixed-rate mortgage falling from 4.6% at the end of 2018 to an all-time low of 2.70% at the end of 2020.

The abrupt decline was rare as data from Freddie shows a plummet in rates has only happened twice before in the past 20 years — in 2003 and after the housing crash in 2009. During those time periods, home price growth experienced upward trajectories similar to price appreciation seen in the Covid-19 housing market.

"I was not anticipating that we would see such low rates in 2020," Keifer said. "It's certainly a possibility we learned from the last couple of years that there are lots of surprises in store."

While he does not forecast a return to 2020's rate environment in 2022 or 2023, he says never say never in regards to the future.

"I would not be totally shocked if in the next five years we were to hit a new low," he said. "But certainly most forecasts and economists are expecting that we won't reach that low in the near term."