When mortgage rates cool, it’s kinda, well, cool. At least if you’ve been waiting for signals that the housing market might get more affordable in 2024.
Rates are now around 7% for many borrowers, even falling into the 6% range for some (depending on the specific term, lender and credit conditions). The average rate for a 30-year fixed mortgage was 7.21% last week, according to CNET’s sister site Bankrate, while Freddie Mac put the average at 6.95%, the lowest in several months.
Recent economic data, including more tempered inflation, and the Federal Reserve’s decision to hold rates steady again proved positive for the direction of mortgage rates. The Fed’s projection of three interest rate cuts in 2024 was particularly influential in helping mortgage rates drop.
Since early November, mortgage rates have seen major declines from their record highs of 8% earlier in the fall. As a result, home loan applications have gone up for six straight weeks, with volume increasing 7.4% from the previous week, according to the Mortgage Bankers Association. But given there aren’t enough homes on the market to meet buyer demand, mortgage application volume is 18% less than last year’s pace.
Mike Fratantoni, the MBA’s deputy chief economist, said in Friday press release that even though both purchase and refinance applications are ticking up, “prospective homebuyers are still challenged by the lack of inventory.”
Here’s what experts say about mortgage rate trends and what you can do if you’re in the market for a new home.
Read more: What Lower Mortgage Rates Mean for the Holiday Homebuying Season
Mortgage rates: What comes next for the housing market
At the start of 2023, experts predicted (and prospective homebuyers hoped) mortgage rates would gradually decline over the course of the year. But that isn’t quite how it played out. For most of the year, mortgage rates continued their relentless climb.
Things started to shift last month as investors got the sense that the Fed -- which has reined in inflation by making borrowing more expensive -- may be done with its rate-hiking cycle. When the Fed began bumping up its federal funds rate in early 2022, interest rates on home loans trended upward, and purchasing a house became out of reach for the average income earner. Though the central bank doesn’t directly control mortgage rates, it influences their movement up or down, as does supply, demand, inflation and other economic factors.
Fingers are now firmly crossed that the Fed’s “higher for longer” stance (that is, holding the benchmark short-term rate steady at a high range of 5.25% to 5.5%) won’t last too much longer.
On Dec. 13, at its final policy meeting of the year, the central bank laid out its economic projections for three rate cuts in 2024, but didn’t promise when they might occur. Some experts say the earliest rate cut could come in March.
“The Fed will likely keep interest rates at their current level at the start of the year, even though inflation is largely under control,” said Daryl Fairweather, chief economist at Redfin. According to Fairweather, rates will likely be cut in the summer, which will propel mortgage rates to decrease as the year progresses.
Quarterly mortgage rate forecast for 2024
While mortgage forecasters base their outlooks on different data, most anticipate the average rate on 30-year fixed mortgages will land near 6% by the end of next year.
How homeseekers should prepare during the holidays
Mortgage rates will eventually drop to 6%, but it won’t happen overnight. Though that’s frustrating for prospective homebuyers, it might be a good thing in the long run, according to Keith Gumbinger, vice president of mortgage site HSH.com.
“Mortgage rates coming down too quickly would simply goose demand, thinning out already thin inventories of homes for sales, and driving prices higher in return,” Gumbinger said. “A slow, steady pace of reduction is likely a better outcome for rates.”
The housing market typically slows during the holiday season, though there are several advantages for serious buyers to shop around before the year’s close. “It’s common for buyers to wait for lower rates, but they should also consider that a drop in rates typically brings an increase in competition,” said Fairweather.
Slower competition during the holidays can give prospective homebuyers more breathing room to make one of the biggest financial decisions of their lives. When there’s less competition, that can also help negotiations on home prices, which have remained stubbornly high over the last several years.
If you do plan to wait until 2024 to purchase a home, however, time is on your side. When mortgage rates tick down, monthly mortgage payments become more manageable. Getting more time can also help you save for a down payment.
The Fed’s rate hikes have been hard for borrowers, making things like credit card debt and mortgage more expensive. But on the brighter side, interest rates mean better returns on high-yield savings accounts and certificates of deposit, or CDs. If you can’t afford today’s housing market, it’s a great time to squirrel away your cash for a down payment and closing costs by taking advantage of higher savings yields.
To paraphrase what a wise man once said: Great things often come to those who wait, but sometimes they’re the things left over by those who hustle.
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