Typically, the holidays aren’t much of a homebuying season. Calendars are full and budgets are tight, not leaving much time or money to make the biggest financial decision of your life.
But with mortgage rates now hitting their lowest levels in months, those anxious to buy a home might just find enough incentive to take the plunge.
Last week, the average rate for a 30-year fixed mortgage dropped to 7.03%, according to Freddie Mac’s weekly survey. A slight downturn in rates since early November has provided welcome relief for prospective homebuyers, steadily driving up demand for home loans, according to the Mortgage Bankers Association.
If declines in rates continue, we can expect to see more activity than is normal this time of the year, according to Gregory Heym, chief economist at Brown Harris Stevens. “There remains a lot of pent-up demand, and many buyers view rate dips as a buying opportunity,” said Heym.
Even so, affordable housing remains out of reach given the combination of high mortgage rates and rising home prices in a supply-restricted market.
“I expect to see more buyers making offers this December, but it won’t mean a lot in the scheme of the entire year,” said Daryl Fairweather, chief economist at Redfin. “2023 is on pace for the fewest home sales since 2008.”
Here’s what experts say about mortgage rate trends and what to know if you’re looking to buy a new home this winter.
Where mortgage rates are headed in December
Most buyers who’ve been priced out with mortgage rates at the high end of 7% are still priced out at the low end of 7%, according to Alex Thomas, senior research analyst at John Burns Research and Consulting. Even though a half-percentage-point decline can feel meaningful to new buyers, rates are still double what they were during the pandemic, when borrowers could easily land a 3% interest rate on a home loan.
To slow skyrocketing inflation, the Federal Reserve began an aggressive string of interest rate hikes in early 2022, pushing mortgage rates to today’s lofty levels. While the Fed doesn’t directly set mortgage rates, its policy decisions and economic projections play an influential role.
At this week’s policy meeting, the Fed is expected to leave its benchmark rate unchanged, maintaining its stance of “higher for longer” interest rates. The central bank will also deliver economic projections, hinting to investors how policymakers expect the wider economy to fare next year, as well as the potential for a rate cut in 2024. The direction of mortgage rates continues to be heavily dependent on monthly inflation and employment data.
“The calculus is simple: If jobs and inflation are lower than expected, rates should be steady to lower and vice versa,” said Matt Graham of Mortgage News Daily. Despite signs of cooling inflation, November’s labor report, released last week, showed robust job gains and low unemployment levels, which could propel the Fed to keep rates elevated further into next year than investors had hoped.
“We predict the average 30-year mortgage rate will linger at 7% in the first quarter, then decline throughout the year, ultimately landing at 6.6% by the end of the year,” Fairweather said.
Mortgage forecast for 2024
Mortgage forecasters base their projections on a complex array of data. Most predict rates will decrease throughout 2024, though exactly when and by how much varies. Here’s a look at where some of the major housing authorities expect average mortgage rates to land over the course of the year.
| Housing authority | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 |
| Fannie Mae | 7.7% | 7.6% | 7.4% | 7.2% | 7.1% |
| National Association of Realtors | 7.8% | 7.5% | 6.9% | 6.5% | 6.3% |
| Wells Fargo | 7.45% | 7.2% | 6.7% | 6.4% | 6.05% |
| Mortgage Bankers Association | 7.5% | 7.1% | 6.6% | 6.3% | 6.1% |
Expert advice for winter homebuyers
When buying a home, you should always calculate how much you can actually afford based on your specific circumstances, and shop around for lenders to get different quotes. While a small drop in mortgage rates could help lower your monthly payments, it likely won’t change the affordability equation for a household that’s living paycheck to paycheck.
It’s impossible to time the market, and mortgage volatility is part of an uncertain economy. Ultimately, the housing market shouldn’t call the shots -- only you can decide if you’re financially ready to make a down payment and commit to a home loan with all the other associated homebuying costs. “The promise of lower rates almost never makes sense as a reason to wait to buy a home,” said Graham.
Still, if you can afford to buy in today’s market, the winter homebuying season comes with a few perks.
Because there’s less competition through the holiday season, sellers could be more motivated to negotiate and seal a deal before the close of the year. “One big benefit of shopping over the winter is that home prices are unequivocally lower than they would be on the same property in the summer,” said Graham.
The tail end of December provides a terrific window for buyers, according to Erin Sykes of NestSeekers International. “Now is the time to buy, when everyone else is scared and sitting on their hands.” Once the holidays are over, the market will pick up again, mortgage rates could see more declines, and more sellers might start listing their properties. “As soon as rates drop significantly, there will be added competition and the possibility of bidding wars again,” Sykes said.
And given that existing housing inventory remains substantially lower than pre-COVID levels, it’s also worth looking at the new home market. “As builders try to meet their year-end sales numbers, some offer considerable year-end incentives that render new homes even cheaper than comparable resale homes,” said Thomas.
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