Inflation and Fed hikes have pushed mortgage rates up to a 20-year high.
30-year mortgage rates are currently expected to fall to somewhere between 6.1% and 7.1% in 2024.
Instead of waiting for rates to drop, homebuyers should consider buying now and refinancing later to avoid increased competition next year..
Will mortgage rates go down in 2024?
Lower mortgage rates can’t come soon enough for future homebuyers waiting for the right moment to jump into the market.
The good news: The wait for lower rates may soon be over. The latest economic data, including October’s Consumer Price Index report, show that inflation is slowing and the economy is cooling. Mortgage rates have already inched down somewhat in response.
The not-so-good news: Rates probably won’t go back to the historic lows we saw in 2020 and 2021. And once rates fall, homebuyers will likely have other challenges to contend with, including increased competition and rising home prices.
Will mortgage rates go down in 2024? Right now, it’s looking like they will, but there are some things homeowners and buyers should know. Check out our in-depth mortgage rate forecast for 2024.
Why are mortgage rates so high?
Like other consumer rates, mortgage rates are impacted in large part by what’s going on in the economy. Rates climbed in 2022 in response to rising inflation. To try to quell rising prices, the Federal Reserve started hiking the federal funds rate, which has also kept mortgage rates elevated.
But inflation has slowed significantly since it peaked in June 2022, when prices had risen 9.1% year over year, according to the Bureau of Labor Statistics. In October 2023, the Consumer Price Index was at 3.2%, and it’s expected to slow even more in the coming months.
The Fed’s goal is to get inflation down to an annual rate of 2%, and the central bank has signaled that it plans to keep rates elevated for as long as it needs to achieve its goal. Fortunately, that might not be much longer. According to the CME FedWatch Tool, there’s a nearly 50% chance could see the Fed cut rates as soon as May of 2024, with a possible second cut by July.
If the Fed does decide to lower the federal funds rate in 2024, mortgage rates will likely come down with it. But for now, rates aren’t likely to drop substantially, and volatility in the market caused by uncertainty in the US and the world (including a looming government shutdown and Israel’s war against Hamas) could cause rates to spike back up temporarily.
“Bond market behavior suggests that rates are likely to remain elevated through the rest of the year, despite the last several inflation reports showing signs of cooling,” says Afifa Saburi, capital markets analyst for Veterans United Home Loans. “The services segment of inflation is proving to be sticky and the wages component of the labor market remains solid – all of which points to holding interest rates at higher levels longer until slower growth no longer calls for aggressive monetary policy.”
Mortgage rate predictions 2024
Most major forecasts expect rates to fall in 2024. But exactly when will mortgage rates go down? Here’s how a few of the leading players stack up in their predictions:
Fannie Mae’s forecast suggests that 30-year mortgage rates will fall into the 7.1% to 7.6% range in 2024, while NAR believes rates will fall a bit further, ending up in the 6.3% to 7.5% range. The MBA forecast predicts that 30-year mortgage rates will drop to 6.1% by the end of 2024.
While there’s some dispute on exactly how much rates will decrease, the general consensus is that mortgage rates will go down in 2024, and they could even end up close to 6% by the end of the year.
When will mortgage rates go down to 3%?
It’s possible that rates will one day go back down to 3%, though if current trends hold that’s not likely to happen anytime soon.
Think about the reason why rates went so low in the first place: In response to the COVID-19 pandemic, the Fed cut the federal funds rate to near zero and purchased a large number of mortgage-backed securities to stave off an economic crisis. This allowed mortgage rates to drop as low as they did, with 30-year mortgage rates reaching an all-time low of 2.65% in January 2021, according to Freddie Mac.
No one can predict exactly when another economy-altering event like the pandemic will occur, but barring something extreme, we likely won’t see rates that low again for a while. Lawrence Yun, chief economist at the National Association of Realtors, even told CNBC that he doesn’t think mortgage rates will reach the 3% range again in his lifetime.
Should I wait for mortgage rates to drop before buying a house?
With mortgage rates at the highest level they’ve been in over 20 years, some hopeful homebuyers have decided to wait for lower rates to start shopping for homes. But that’s not necessarily the best strategy, as there are some advantages to buying right now.
At the moment, the vast majority of borrowers have rates that are much lower than current rates. According to a Redfin analysis of Federal Housing Finance Agency data, over 90% of homeowners have a mortgage rate below 6%. Many have rates that are even lower; 62% have a rate below 4%.
High rates have kept many of these homeowners from selling, since they don’t want to give up their current rates. While this has severely limited inventory, the lack of additional buyers on the market has also kept prices moderate.
“While buyers may have a lower rate in 2024, there will be more buyer competition next year, which will drive prices higher,” says Karen Kostiw, a real estate agent with Coldwell Banker Warburg in New York City. “Buyers should grab a deal now at a lower price and refinance next year if rates do fall.”
Saburi agrees that buying now and refinancing later is a good strategy for buyers who want to avoid competition and the higher home prices that will likely come with it.
“Would-be buyers that have the ability to buy can avoid a potentially competitive market by locking in a purchase now and taking advantage of a refinance in the future,” Saburi says.
A mortgage refinance replaces your existing mortgage with a new mortgage, often with the goal of getting a lower rate or lower monthly payment. If you can afford to buy a house now, you could avoid a tough housing market next year and have the opportunity to lower your housing costs with a refinance once rates fall. Just be sure to shop around and get quotes from multiple mortgage refinance lenders to be sure you’re getting the best rate.
