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Inflation and Federal Reserve rate hikes have pushed mortgage rates to their highest in 20 years. 30-year mortgage rates are currently expected to fall to 6.5% to 7% by 2024. Homebuyers may consider buying now and refinancing later to avoid increased competition when rates fall.
Good news for borrowers: The wait for lower interest rates may soon be over. As inflation slows and the economy cools, mortgage rates should start to trend lower this year.
Inflation has held up somewhat in recent months but is expected to continue to slow overall this year, meaning the Federal Reserve could begin cutting the federal funds rate in the second half of 2024, which would significantly ease upward pressure on mortgage rates.
The not-so-good news is that interest rates probably won't return to the historic lows seen in 2020 and 2021. And as rates fall, homebuyers will have to contend with other challenges, including increased competition and rising home prices.
Will mortgage rates fall in 2024? At this point, they appear to be, but there are a few things homeowners and buyers should know. Check out our detailed mortgage rate forecast for 2024.
Why are mortgage interest rates so high?
Like other consumer interest rates, mortgage interest rates are heavily influenced by economic conditions. In 2022, interest rates increased in response to rising inflation. To curb price increases, the Federal Reserve began to aggressively raise the federal funds rate, which has also led to mortgage interest rates remaining high.
According to the Bureau of Labor Statistics, inflation has slowed significantly since peaking in June 2022, when prices rose 9.1% year-over-year. The Consumer Price Index rose 3.4% year-over-year in April 2024, down slightly from the previous month.
However, with inflation still above the Fed's 2% target, we may have to wait a little longer before interest rates ease.
The Fed could cut interest rates this fall, but if inflation remains sluggish, that may not happen until late 2024 or 2025, meaning mortgage rates could remain high this year.
Mortgage interest rates forecast for 2024
Most of the leading forecasts expect rates to fall slightly in 2024. But when exactly will mortgage rates fall? Here's what leading forecasters are predicting.
The MBA's forecast suggests 30-year mortgage rates will fall to the 6.5% to 6.9% range through the remainder of 2024, and the NAR predicts a similar trajectory. Fannie Mae, however, thinks rates could remain in the low 7% range this year.
When will mortgage rates drop to 3%?
It's possible that interest rates could return to 3% at some point, but that's unlikely to happen anytime soon if current trends continue.
Let's consider why interest rates got so low in the first place. In response to the COVID-19 pandemic, the Federal Reserve slashed the federal funds rate to near zero and purchased a huge amount of mortgage-backed securities to stave off an economic crisis. This drove mortgage rates so low that 30-year mortgage rates hit an all-time low of 2.65% in January 2021, according to Freddie Mac.
No one can predict exactly when an economy-altering event like a pandemic will occur, but barring something extreme, we probably won't see rates this low again for a while. Lawrence Yun, chief economist for the National Association of Realtors, told CNBC that he doesn't expect mortgage rates to hit the 3% range again in his lifetime.
Should you wait for mortgage rates to drop before buying a home?
With mortgage interest rates still high, some hopeful homebuyers have decided to wait until interest rates drop before making their home purchase. However, that's not necessarily the best strategy, as there are several advantages to buying now.
The vast majority of borrowers today are getting loans with interest rates far lower than today's rates: 89% of homeowners have mortgage rates below 6%, according to a Redfin analysis of Federal Housing Finance Agency data. Many are getting even lower rates, with 59.4% putting down less than 4%.
High interest rates are forcing many homeowners to hold off on selling as they are unwilling to give up their current rates, which has severely limited inventory but also kept prices somewhat lower due to the lack of new buyers in the market.
Afifa Sabri, a capital markets analyst at Veterans United Home Loan, said buying now and refinancing later is a good strategy for buyers who want to avoid competition and the rising home prices that can come with it.
“Buyers who have the ability to buy can avoid a potentially competitive market by finalizing their purchase now and taking advantage of refinancing in the future,” Sabri says.
A mortgage refinance replaces your existing mortgage with a new one, often with the goal of lowering your interest rate or monthly payment. If you can afford a home now, you can avoid a tough housing market later this year or next, and it gives you the opportunity to lower your housing costs by refinancing when interest rates drop. But be sure to get quotes from multiple mortgage refinance providers to ensure you get the best rate.
Mortgage Rates 2024: FAQs
Mortgage rates are expected to fall in the second half of 2024. Depending on which 2024 housing market forecast you look at, 30-year mortgage rates could be between 6.5% and 7% by the end of the year.
All consumer interest rates, including mortgage rates, should begin to ease as soon as inflation slows further. However, interest rates will likely remain near current levels until inflation slows enough for the Federal Reserve to start lowering the federal funds rate.
Mortgage rates are currently expected to continue their downward trend through 2024 and 2025. The Mortgage Bankers Association believes 30-year mortgage rates could fall to as low as 5.9% in 2025.
According to Freddie Mac, 2023 mortgage rates peaked in October, with the 30-year rate hitting 7.79%.
It is difficult to predict exactly what mortgage rates will be like over the next five years. Mortgage rates are influenced by the economy, which is often unpredictable or volatile. At this time, it appears likely that mortgage rates will ease over the next two years and then remain relatively stable thereafter.
Interest rates are expected to trend downwards later this year and through 2025. Borrowers may see lower interest rates as early as fall 2024.
Molly Grace
Mortgage Reporter
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