Mortgage Forecast: 2024 May Give Homebuyers Lower Rates

February 26, 2024
4 Minute Read
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Is the new year bringing a shift in the housing market dynamics? While not a complete overhaul, the anticipation of a decline in mortgage rates in 2024 suggests that homebuyers may lower rates from of the past year.

The year 2023 marked the least affordable housing market on record, according to a report from mortgage brokerage Broker. However, a turning point occurred end of 2023 when mortgage rates entered a downward streak, providing a much-needed boost of optimism to market observers.

Despite the typical seasonality of the housing market, mortgage interest rates operate on a daily, and even hourly, basis, responding to various factors such as monetary policy, economic data, 10-year Treasury yields, and investor expectations. While some fluctuation in mortgage rates is anticipated, caution is advised against excessive optimism, as warned by mortgage experts.

Presently, the average rate for a 30-year fixed mortgage hovers just below 7%, with forecasts indicating a gradual decline to the low-6% range by the year's end. Delving deeper, let's examine the potential pathways leading to this projected outcome.

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The prospect of mortgage rates experiencing a rapid descent to the record lows observed during the pandemic is unlikely. Instead, a more plausible scenario involves a gradual decline of one percentage point or more throughout the year. This trajectory is anticipated as markets await improvements in inflation and the Federal Reserve's initial interest rate cut.

The potential for Fed rate cuts to impact the mortgage market

In the ongoing battle against inflation, the Federal Reserve (Fed) has raised interest rates 11 times over nearly two years, contributing to increased borrowing costs across the economy. However, as inflation shows signs of cooling, experts believe the economic climate is becoming more favorable.

Having maintained its benchmark rate since July 2023, the Fed has projected three rate cuts for the current year. This announcement, coupled with other economic indicators, played a crucial role in the significant decline in mortgage rates during the final two months of 2023. Despite a more than one percentage point drop in a span of nine weeks, mortgage rates experienced a slight uptick around the new year.

Mortgage rates often see a slight increase from January to February as the spring homebuying season gains momentum. Attention is now focused on monthly inflation and jobs data, influencing the central bank's policy decisions. If inflation progresses toward the Fed's annual target of 2%, mortgage rates are expected to trend lower. Barring inflation developments, a clearer intent to cut rates by the Fed could result in further declines in mortgage rates.

However, the wait continues, with the Fed's first policy meeting scheduled for the end of January, followed by meetings in March and early May. Most experts caution that a rate cut before May might be premature, as Fed members may prefer to see more evidence of a sustained retreat in price pressure.

Some economists , emphasizes that the impact on lower mortgage rates is not solely about the rate cuts themselves but the message they convey to financial markets.

Housing affordability may see incremental improvement in 2024, with existing home prices potentially softening. Lower mortgage rates, combined with slightly reduced home prices, could make home purchasing costs more favorable in certain areas, offering a glimmer of hope for prospective buyers.

However, challenges persist due to limited housing inventory. Many current homeowners with mortgage rates significantly lower than current rates are hesitant to sell, constraining the supply of existing homes. This scenario might shift if home loan rates decline, encouraging homeowners to take advantage of lower interest rates and move into homes better suited to their needs.

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