Mortgage Rates Predictions For 2024
Interest Rates Predictions in 2024
Mortgage rates have risen significantly over the last year, which has affected homebuyer affordability. A drop in mortgage rates would likely bolster mortgage demand, according to analysts.
But like any other forecast, mortgage rates predictions come with a certain degree of uncertainty. Read on to learn what experts are predicting for mortgage rates in 2024.
1. Rates will remain stable
Mortgage rates aren’t expected to increase significantly in 2024. In fact, a number of experts expect them to remain fairly stable. This is partly due to the fact that inflation has been sluggish, and the labor market remains tight. As a result, it’s unlikely that the Fed will need to increase interest rates to slow growth or keep inflation in check.
That being said, there is always a chance that the Fed could change its course and start raising rates again in the future. However, most experts believe that this is unlikely. The reason is that the Fed’s decisions will be dictated by incoming data. If incoming data shows that the economy is growing faster than expected, then the Fed will likely raise rates. If incoming data indicates that the economy is weakening, then the Fed will probably lower rates.
Even if the Federal Reserve does decide to raise rates in the future, it will be at a much slower pace than it has been over the past few years. This means that mortgage rates will be more stable in 2024 than they have been in the past.
Economists at Fannie Mae believe that mortgage rates will be around 6% in the first quarter of 2023 and 5.7% in the second quarter of 2024. These are relatively low levels, and it will be easier to afford a home with these mortgage rates.
The National Association of Realtors also thinks that mortgage rates will be more stable in 2024. It expects that they will be around 5%, which is more affordable for many homeowners. It also expects that a lower rate will help to boost homebuyer demand.
Nevertheless, it’s important to note that mortgage rates won’t drop to the lows of the past decade. The low rates of 2020 and 2021 were a unique situation, and they are unlikely to repeat themselves.
Regardless of what happens with mortgage rates, it’s likely that the housing market will struggle in 2023 and 2024. A lack of inventory, affordability challenges and higher mortgage rates will all contribute to the slowdown in sales.
2. Rates will increase
Mortgage rates are at their highest point since late 2022, and that's not good news for would-be homebuyers. However, there are some signs that the rate increase might be ending soon. As a matter of fact, Fannie Mae expects that the 30-year fixed-rate mortgage will dip below 6% this year and into 2024. A 1% drop in interest rates works out to about $200 in monthly mortgage costs for a $300,000 loan. To give you some perspective, that's what a mortgage calculator for CNBC Make It shows.
A 1% drop in mortgage rates also could help to ease housing affordability concerns. The cost of owning a home is significantly higher when rates are above 5%, and affordability challenges have been keeping many people out of the market altogether.
According to the latest figures from the Mortgage Bankers Association, mortgage interest rates averaged 4.8% this year and will fall to around 4% next year. That's not as low as some mortgage experts would like, but it's still much lower than the highs that have been seen over the past several years.
However, some researchers think that the mortgage-rate peak may have already happened, and the rates will fall further. For example, analysts at Bank of America say that mortgage rates may decline to about 5.25% by the end of 2023 as the spread between 30-year mortgage rates and 10-year Treasury yields narrows.
This could boost the housing market, which is still struggling with affordability issues and a lack of inventory. If mortgage rates return to the 3% or 4% range, that could allow existing homeowners to sell and unlock starter-home inventory and allow first-time buyers to qualify for more affordable loans.
However, even though it seems unlikely that mortgage rates will remain above 6%, the bottom line is that homebuyers should continue to prepare for rising interest rates by increasing their savings and taking advantage of historically low mortgage rates while they're available. If they wait too long, there's a chance that the mortgage-rate rise will push more people out of the market and raise the supply of homes for sale.
3. Rates will fall
Mortgage interest rates play a crucial role in the housing market. When mortgage rates rise, it can lead to lower homebuying activity, while when they fall, it can boost demand and drive prices higher. As a result, many consumers are anxiously waiting to see how mortgage rates will move in the coming years.
The National Association of Realtors predicts that mortgage rates will stabilize around 5.5% over the next few years. According to NAR chief economist Lawrence Yun, this is the lowest rate in a decade and will likely not entice consumers to rush out to buy homes.
While it is possible that mortgage rates could reach 8%, most experts believe this will be an extremely unlikely occurrence. The reality is that there simply aren’t enough consumer demand or supply of affordable homes for this to happen.
Another reason that a 8% mortgage rate isn’t likely is that the Federal Reserve doesn’t have much room for further rate hikes. While the Fed doesn’t directly set mortgage rates, it does establish monetary policy to control inflation and keep the job market stable. One of the ways it does this is by setting the federal funds rate, a short term rate that banks charge each other. When the Federal Reserve raises this rate, mortgage rates generally follow suit.
Mortgage rates are also influenced by 10-year Treasury bond yields, which means that as the yields on these bonds decline, mortgage rates will follow suit. This is what happened earlier this year when the Fed pulled back on its mortgage-bond purchases. That led to a drop in the spread between 30-year mortgage rates and 10-year Treasury yields, which caused rates to fall.
This trend is expected to continue, with ING predicting that mortgage rates will remain above 5% throughout 2023, but gradually falling in the second and third quarters. Fannie Mae has even become more optimistic in its latest housing forecast, suggesting that mortgage rates will be below 5.75% by the end of 2024. That may sound horrible now, but it would be a good thing for homeowners and those looking to purchase a home in the future.
4. Rates will remain stable
Mortgage rates ticked up slightly this week, but they remain in the high-6% range for a 30-year fixed mortgage. This is largely due to the Federal Reserve's decision to raise the federal funds rate last week, but most lenders had already priced in this move. So, it's not likely that mortgage rates will rise further. In fact, it's more likely that they will fall as we get deeper into the summer. A slowdown in the economy, slackening inflation and an increasingly tight labor market are all recipes for lower interest rates.
It's important to note, however, that while these trends are all positive for borrowers, it's impossible to predict what mortgage rates will do in the future. They are market-driven, which means that they can rise or fall at any time depending on a variety of factors. As such, it's always wise to take any mortgage rates predictions/forecasts with a grain of salt.
One of the biggest factors that will influence mortgage rates in 2024 is how they react to ongoing economic and inflationary pressures. Inflation has been running a bit higher than the Fed's target of 2%, and this will continue to put pressure on rates. While inflation is likely to come down a bit, it's not expected that mortgage rates will drop to more sustainable levels until late-2024 or even into 2025.
This is especially true given that the spread between mortgage rates and treasury bond rates has been exceptionally wide. Typically, this spread is closer to the historical average of around 1.5%.
With mortgage rates still fairly high, homebuyers are understandably worried about when it might be a good time to buy. While it's possible that mortgage rates will dip below 6% in 2024, it's unlikely they will return to the record lows seen in 2020 and 2021. That's not to say that mortgage rates won't be more affordable in the future, but it is a good idea to start looking for homes now, so you can secure a great deal when the time comes.
