Updated 05/18/2026
Interest rates are back above 6% with the best 30 year fixed rates being around 6.375%. This is due to the Iran war, oil prices and the Fed chairman, Jerome Powell’s opposition to lowering rates. Hopefully this interest rate bump will be short-lived once the straight of Hormuz is shown to be safely reopened and a new Fed chairman takes over later this year. Though Jerome Powell’s influence to keep rates up will still be strong. Maybe I’m overly optimistic but I think rates will drop down a little later in the year. Hopefully that will be a trend that follows through next year, bringing rates even lower over the next 18 months. I’m predicting 5.875% later this year and maybe even 5.625 next year. Things are moving in the right direction. If you remember rates average 7.125% a year and 1/2 ago
If I were buying a home right now I would not pay points for a lower interest rate but buy now and wait till rates are down and then refinance. I would even seriously consider an adjustable-rate for its initial discount and as I said refinance when rates are down. If you wait till interest rates are down, then equally home prices will be up. The following link is not necessarily the absolute best rates, so shop around or call me and I’ll give you a few referrals of lenders who could beat these average rates. Click Here To See Current Interest Rates
Why do I think rates will come down .5% to 1.125% over the next two years? The Federal Reserve has an official and two unofficial guidelines they use to adjust interest rates, recession vs. inflation (official) and federal debt to GDP ratio and cooperation versus lack of cooperation to whatever the current administration wants.
First, we are currently have mild inflation but it’s not from a booming economy it’s from higher oil prices. So as oil prices recede over the next 3 to 12 months that should ease the perceived inflation which can drive rates down a little. The economy can actually use a little boost from lower rates to offset higher oil prices. Although inflation through 2024 was as high as 8%, it currently would be averaging around 3.25% if not for the higher oil prices which should come down.
Second, the debt to GDP ratio will continue to increase for another year or so but level off and drop as manufacturing is drawn back to the United States to offset tariffs. That effectively will not lower the national debt but should skyrocket the GDP. Our gross domestic product or GDP is around 31 trillion and our national debt is a around 39 trillion. That ratio of 1 to 1.26 needs to be lower than 1 to 1. Though paying down our debt by 8 trillion in a short period of time is near impossible, raising our GDP by 8 trillion over the next few years is actually likely to happen with the additional manufacturing coming back to the United States. Any movement bringing those numbers closer to a more safe 1 to 1 ratio or lower, will give the feds added incentive to lower rates. And hopefully the new Fed chairman will be willing and able to work with the current administration and bolster the American economy.
Click here to See Government Borrowing In Real Time. You won’t believe your eyes!
If you have any questions, feel free to call me. Alex Schauffert 707 332 8301
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