2024 may be the year borrowers finally read something positive about mortgages: The staring contest between potential buyers and lenders may be coming to an end sooner rather than later. Why? The mortgage rates have decreased quite a bit since they peaked in October. Many real estate professionals and experts believe they could drop below 6.6% at the end of 2024 (but we’ve heard this before).
The most recent economic data indicates that inflation is decreasing while the overall economy is slowing. In fact, the Federal Reserve seems happy with the changes and has stated that it is ready to cut rates for federal funding next year. This will put pressure on the increase in mortgage rates.
The bad news is that rates will likely return to a different level than we witnessed in 2021 and 2020. Once rates drop, buyers will likely face additional challenges, including the increase in competition and increasing home costs.
Are mortgage rates likely to decrease in 2024? At the moment, they’ll, but there are a few things that buyers and homeowners should be aware of. Read our detailed mortgage rate forecast for 2024.
Why Do Mortgage Rates Remain So High?
Similar to other consumer rates, mortgage rates are affected to a large extent by the events happening in the economy. Rates increased in 2022 as a response to inflation rising. To combat price increases in the market, the Fed has been aggressively expanding the Federal Funds Rate, which has maintained high mortgage rates.
However, inflation has decreased significantly since the peak in June 2022, when prices have risen 9.1 percent year-over-year, according to theย Bureau of Labor Statistics. In December 2023, it was reported that the Consumer Price Index was increasing by 3.4 percent compared to the same time last year and is predicted to fall further in the coming months.
2024 mortgage rate forecasts
Many central forecasts anticipate rates to drop by 2024. But when exactly will the mortgage rates fall? Here’s how the top players compare on their predictions:
- Mortgage Bankers Association – predicts mortgage rates to decrease from 6.9% to 6.1% by year’s end.
- Fannie Mae – predicts mortgage rates to decrease from 6.4% to 5.8% by year’s end.
- National Association of Realtors – predicts mortgage rates to decrease from 6.8% to 6.1% by year’s end.
MBA’s forecast indicates that 30-year mortgage rates will fall from 6.1 percent to 6.9% by 2024. NAR’s forecast is similar, forecasting that rates will stay in the 6.1 to 6.8 percent range. According to the Fannie Mae forecast, the rates for 30-year mortgages will decrease to below 6% by the end of this year and reach 5.8 percent by the close of 2024.
Although there is some disagreement about how much the rate will fall, there is a general consensus that the mortgage rate will move down by 2024 and may even be close to or less than 6% by the close of the calendar year.
When Will Mortgage Rates Return To 3 Percent?
While it is possible rates may drop into the 3% range, it is less than likely we will see anything close to 3% anytime soon.
Consider why rates were at such low levels in the first instance. In response to the COVID-19 pandemic, the Fed reduced the federal funds rate to nearly zero and bought many mortgage-backed securities to prevent an economic downturn. This facilitated mortgage rates to fall to as low as they did and saw 30-year mortgage rates at an all-time low of 2.65 percent in January 2021, as per Freddie Mac.
There is no way to predict precisely the exact date when an economic event such as the pandemic is likely to be a reality, but barring an extreme event, we will not see rates this low again for a long time. Lawrence Yun, chief economist at the National Association of Realtors, even stated to CNBC that the mortgage rate he’s expecting will be in the 3% mark at any point.
Should I Wait For Mortgage Rates To Decrease Before Purchasing A Home?
The mortgage rate is at the highest they’ve ever been in more than 20 years, and some prospective buyers have chosen to wait until rates drop before they begin their search for houses. While that seems like the smarter option, there are a few advantages to buying a home or real estate now as opposed to later:
There Is Less Competitionย
A higher mortgage rate and rising home prices have kept many potential homeowners out of the market, so you’re less likely to be involved in bidding wars that can increase costs.
In the past, intense competition for buyers meant that many anticipated having to offer more than the asking price to be considered. As things have settled down, you could find it easier to get an offer accepted.
Home Values Increase Over Timeย
The earlier you purchase an apartment, the faster you’ll be able to benefit from the increasing home value.
Although the market may occasionally dip, house values increase as time passes to buy. This means that homes will become more expensive, and by purchasing today, you will get your foot on the ground and can witness your wealth increase as the value of your home increases over time.
A Caveat:ย It typically takes a few years of ownership before you’re ready to make a profit when selling your home, and it may take longer if there’s a reason that causes price increases to slow or drop for a short period of time.
However, investing in a home is worthwhile if you plan to remain in the same place for the next 5-10 years.
You Could Beat The Crowds For The Home You Want
Although homebuying competition may not be as fierce as it was during the COVID-era boom, the situation will likely get heated somewhat as soon as home mortgage interest rates drop.
When the market is in a good state and competitive, it’s common for buyers to make several or several offers before they are accepted. To stay competitive, they may need to bring more cash or make substantial concessions to purchase a property they are interested in.
If you buy now, you’ll stay clear of any additional competition, and as a homeowner, you’ll gain from the higher value of your home.
Refinancing Later May Help You Weather Any Additional Storms
The name of the game these days is keeping monthly payments down, knowing that you will have the opportunity to do a refinance when rates come down. Even if you are taking an interest rate that is high now, you can refinance to lower rates in the future.
If you decide to refinance your mortgage into one more than the remaining one, for instance, a 30-year refinance of your mortgage, which could reduce your monthly payments even further. Search for the most reliable mortgage refinance companies and obtain multiple rates. This will help you get the most competitive rate and lower your monthly payments as much as possible.
If You Can Afford It Take What You Can While Mortgage Competition Is Cooler
The majority of homeowners have mortgage rates that are considerably lower than current rates. According to a Redfin study from Federal Housing Finance Agency data, 89 percent of homeowners have mortgage rates below 6.6%. A lot of homeowners have significantly lower rates. 59.4 percent have rates lower than 4.4%.
High rates have prevented many homeowners from selling as they aren’t willing to drop existing rates. This has resulted in a severely depleted supply, and the absence of buyers in the market has kept prices low.
Afifa Saburi, a capital markets analyst for Veterans United Home Loans, believes purchasing today and then refinancing it later is an excellent option for those who wish to stay clear of market competition and the increased price of homes that may be associated 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,” says Saburi.
A mortgage refinance is a way to replace your mortgage with a brand new one, typically to obtain a lower interest rate or smaller monthly payments. If you can purchase a home now, it is possible to stay out of the shaky housing market in the coming years and reduce your home’s cost by refinancing your mortgage when rates drop. Ensure you look around and request estimates from various loan providers for mortgage refinance to ensure you’re getting the most competitive rate.
