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Mortgage rates increased this week. But the latest news from the Federal Reserve suggests that we could see them start to tick down in the coming months.
On Wednesday, the Fed announced that it will keep the federal funds rate steady as it waits for more data showing that inflation is nearing its 2% goal. The central bank also released the latest Summary of Economic Projections, which showed that Fed officials still expect to cut rates three times this year. This would likely lead to lower mortgage interest rates as well.
Average 30-year mortgage rates increased 13 basis points to 6.87% this week, according to Freddie Mac. Average 15-year rates also inched up to 6.21%.
“After decreasing for a couple of weeks, mortgage rates are once again on the upswing,” Sam Khater, Freddie Mac’s chief economist, said in a press release. “As the spring homebuying season gets underway, existing home inventory has increased slightly and new home construction has picked up. Despite elevated rates, homebuilders are displaying renewed confidence in the housing market, focusing on the fact that there is a good amount of pent-up demand, an ongoing supply shortage, and expectations that the Federal Reserve will cut rates later in the year.”
The Fed could start cutting rates as soon as its June meeting, according to the CME FedWatch Tool. This would remove some of the upward pressure off of mortgage rates and allow them to trend down a bit.
But it will likely be a while before we see affordability improve significantly. If you’re waiting for rates to drop before you start the homebuying process, you may have better luck later this year or in 2025.
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$1,161 Your estimated monthly payment
Total paid$418,177
Principal paid$275,520
Interest paid$42,657
Paying a 25% higher down payment would save you $8,916.08 on interest charges
Lowering the interest rate by 1% would save you $51,562.03
Paying an additional $500 each month would reduce the loan length by 146 months
By clicking on “More details,” you’ll also see how much you’ll pay over the entire length of your mortgage, including how much goes toward the principal vs. interest.
30-Year Fixed Mortgage Rates
Last week’s average 30-year fixed mortgage rate is 6.87%, according to Freddie Mac. This is a 13-basis-point increase from the previous week.
The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.
The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you’ll have a higher rate than you would with shorter terms or adjustable rates.
15-Year Fixed Mortgage Rates
Average 15-year mortgage rates inched up to 6.21% last week, according to Freddie Mac data. This is a five-point increase since the week before.
If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.
How Do Fed Rate Hikes Affect Mortgages?
The Federal Reserve has increased the federal funds rate dramatically to try to slow economic growth and get inflation under control. So far, inflation has slowed significantly, but it’s still a bit above the Fed’s 2% target rate.
Mortgage rates aren’t directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed policy moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed hikes to affect the broader economy.
The Fed has indicated that it’s likely done hiking rates and that it could start cutting soon. This will likely allow mortgage rates to trend down later this year.
When Will Mortgage Rates Go Down?
Mortgage rates increased dramatically over the last two years, but they’ve moderated somewhat in recent months, and are expected to drop further this year.
In February 2024, the Consumer Price Index rose 3.2% year-over-year. Inflation has slowed significantly since it peaked last year, which is good news for mortgage rates. But it has to slow further before rates will begin to fall.
For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.
A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.
Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans.
The week got off to a weaker start with most of the losses seen during the overnight session, but gradual ongoing selling during domestic hours. There were no overt market movers behind the weakness unless we want to give credit to anxiety over the Treasury auction cycle or technical resistance. Even if auctions aren’t the source of the outright weakness, they do likely have a hand in helping MBS outperform today. 5.5 UMBS were only down about an eighth of a point while Treasuries with comparable durations had lost roughly twice as much ground (implication being that MBS don’t have to worry about 3 big supply gluts to start the week).
09:44 AM
Moderately weaker overnight and now choppy/sideways. 10yr up 3.9bps at 4.241. MBS down an eighth.
11:01 AM
Treasuries underperforming with 10yr up 4.7bp at 4.249. MBS down 5 ticks (.16).
03:35 PM
MBS continue outperforming, down only 3 ticks (.09). 10yr up 5.1bps at 4.253.
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LOS ANGELES — The average long-term U.S. mortgage rate climbed back to nearly 7% this week, pushing up borrowing costs for home shoppers.
The average rate on a 30-year mortgage rose last week from 6.74% to 6.87%, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.42%. The average rate is now just below where it was two weeks ago.
Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also rose this week, pushing the average rate last week from 6.16% to 6.21% . A year ago it averaged 5.68%, Freddie Mac said.
When mortgage rates rise, they can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford in a market already out of reach for many Americans.
“After decreasing for a couple of weeks, mortgage rates are once again on the upswing,” said Sam Khater, Freddie Mac’s chief economist.
Investors’ expectations for future inflation, global demand for U.S. Treasurys and what the Federal Reserve does with its short-term interest rate can influence rates on home loans.
After climbing to a 23-year high of 7.79% in October, the average rate on a 30-year mortgage has remained below 7% since early December. Rates eased amid expectations that inflation was cooling enough for the Fed to begin lowering its short-term interest rate by this spring. But a spate of stronger-than-expected reports on inflation, the job market and the economy in recent weeks dimmed that outlook, sending mortgage rates higher through most of February.
Many economists expect that mortgage rates will ultimately ease moderately this year, but that’s not likely to happen before the Federal Reserve begins cutting its benchmark interest rate. On Wednesday, the central bank kept its rate unchanged and signaled again that it expects to make three rate cuts this year, but not before it sees more evidence that inflation is slowing.
“The Fed’s announcement that it is holding interest rates steady for now was not unexpected, but it does mean that mortgage rates are going to remain higher for longer,” said Lisa Sturtevant, chief economist at Bright MLS.
The U.S. housing market is coming off a deep, 2-year sales slump triggered by a sharp rise in mortgage rates and a dearth of homes on the market. The overall decline in rates since their peak last fall has helped lower monthly mortgage payments, providing more financial breathing room for homebuyers facing rising prices and a shortage of homes for sale this year.
Sales of previously owned U.S. homes rose in February from the previous month to the strongest pace in a year. That followed a month-to-month home sales increase in January.
Still, the average rate on a 30-year mortgage remains well above where it was just two years ago at 4.42%. That large gap between rates now and then has helped limit the number of previously owned homes on the market by discouraging homeowners who locked in rock-bottom rates from selling.
In the current regime of bond market movement, traders have been running from one side of the field to the other in an attempt to get in on the action surrounding inflation data and labor market data. There hasn’t been much in between apart from Fed communications that tend to reinforce or refine an interpretation of the data. This week’s Fed reinforced the most recent ceiling in yields/rates and we’re not terribly likely to challenge the recent floor without another round of big-ticket data. For that, we’re waiting at least until next Friday (PCE), and considering bonds are closed next Friday, the focus is probably better-placed on the following week’s NFP.
The day is off to a decent start with yields down more than 5bps, but again, consider that in the context of the chart above. 3 out of the past 3 days have seen the same trading range and the same pace of “lower lows.”
National mortgage rates increased for all loan terms compared to a week ago, according to data compiled by Bankrate. Rates for 30-year fixed, 15-year fixed, 5/1 ARMs and jumbo loans moved higher.
While it’s expected that rates will gradually come down this year, the path might be bumpy.
At its Jan. 31 meeting, the Federal Reserve announced it would hold off changing rates, but could cut rates in the future. At their March 20th meeting, the Fed will update their outlook on rates. Rate fluctuations affect many areas of the economy, including the 10-year Treasury, a key benchmark for fixed-rate mortgages.
“Where the 10-Year Treasury yield goes, mortgage rates will follow,” says Ken Johnson of Florida Atlantic University. “In roughly the last two months, the 10-year Treasury yield is up 50 basis points. Depending on the source, the 30-year mortgage rate is up 48 basis points. Treasurys’ path remains a coin toss at this point.”
Rates last updated March 25, 2024.
The rates listed above are marketplace averages based on the assumptions here. Actual rates listed on-site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Monday, March 25th, 2024 at 7:30 a.m.
30-year mortgage increases, +0.10%
Today’s average rate for the benchmark 30-year fixed mortgage is 6.98 percent, an increase of 10 basis points over the last week. A month ago, the average rate on a 30-year fixed mortgage was higher, at 7.19 percent.
At the current average rate, you’ll pay a combined $663.96 per month in principal and interest for every $100,000 you borrow. Compared to last week, that’s $6.70 higher.
Use Bankrate’s mortgage rate calculator to calculate your monthly payments and see how much you’ll save by adding extra payments. The tool will also help you calculate how much interest you’ll pay over the life of the loan.
15-year mortgage rate increases, +0.06%
The average rate for the benchmark 15-year fixed mortgage is 6.47 percent, up 6 basis points since the same time last week.
Monthly payments on a 15-year fixed mortgage at that rate will cost around $869 per $100,000 borrowed. The bigger payment may be a little more difficult to find room for in your monthly budget than a 30-year mortgage payment, but it comes with some big advantages: You’ll come out several thousand dollars ahead over the life of the loan in total interest paid and build equity much more quickly.
5/1 adjustable rate mortgage goes up, +0.13%
The average rate on a 5/1 ARM is 6.51 percent, climbing 13 basis points over the last week.
Adjustable-rate mortgages, or ARMs, are mortgage loans that come with a floating interest rate. To put it another way, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These types of loans are best for people who expect to sell or refinance before the first or second adjustment. Rates could be considerably higher when the loan first adjusts, and thereafter.
While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.
Monthly payments on a 5/1 ARM at 6.51 percent would cost about $633 for each $100,000 borrowed over the initial five years, but could ratchet higher by hundreds of dollars afterward, depending on the loan’s terms.
Jumbo mortgage rate goes up, +0.11%
The average rate for a jumbo mortgage is 7.09 percent, up 11 basis points over the last seven days. A month ago, the average rate for jumbo mortgages was higher at 7.24 percent.
At today’s average rate, you’ll pay $671.36 per month in principal and interest for every $100,000 you borrow. Compared to last week, that’s $7.40 higher.
Refinance rates
30-year mortgage refinance climbs, +0.12%
The average 30-year fixed-refinance rate is 6.99 percent, up 12 basis points over the last seven days. A month ago, the average rate on a 30-year fixed refinance was higher at 7.16 percent.
At the current average rate, you’ll pay $664.63 per month in principal and interest for every $100,000 you borrow. That’s up $8.04 from what it would have been last week.
Where are mortgage rates heading?
With inflation still above the Fed’s 2 percent goal and the job market holding strong, the Fed isn’t likely to cut rates at its March meeting.
“The Federal Reserve will not cut interest rates in the first half of this year, in my view,” says Lawrence Yun, chief economist of the National Association of Realtors, “but rate cuts of three, four or even five rounds will be possible in the second half of the year as rent measures will be much more well-behaved.”
The rates on 30-year mortgages mostly follow the 10-year Treasury, which shifts continuously as economic conditions dictate, while the cost of variable-rate home loans mirror the Fed’s moves.
These broader factors influence overall rate movement. As a borrower, you could be quoted a higher or lower rate compared to the trend.
What these rates mean for your mortgage
While mortgage rates change daily, it’s unlikely we’ll see rates back at 3 percent anytime soon. If you’re shopping for a mortgage now, it might be wise to lock your rate when you find an affordable loan. If your house-hunt is taking longer than anticipated, revisit your budget so you’ll know exactly how much house you can afford at prevailing market rates.
Keep in mind: You could save thousands over the life of your mortgage by getting at least three loan offers, according to Freddie Mac research. You don’t have to stick with your bank or credit union, either. There are many types of mortgage lenders, including online-only and local, smaller shops.
“All too often, some [homebuyers] take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”
More on current mortgage rates
Methodology
Bankrate displays two sets of rate averages that are produced from two surveys we conduct: one daily (“overnight averages”) and the other weekly (“Bankrate Monitor averages”).
The rates on this page represent our overnight averages. For these averages, APRs and rates are based on no existing relationship or automatic payments.
Learn more about Bankrate’s rate averages, editorial guidelines and how we make money.
While it’s not technically a 9 day weekend for the bond market, it might as well be. It’s not that the upcoming week is inconsequential in terms of economic data and events, just that the data isn’t on a high enough tier to change the big picture. Perhaps if rates were closer to boundary of their recent range we could entertain next week’s reports helping to spark a lead-off toward higher or lower rates, but from our current perch, the most likely outcome would simply be a revisiting of a recent range boundary. The fact that next Thursday is an early close before a full closure on Friday only adds to the case for traders tuning out until April 1st. As for today specifically, it was a winner in terms of bond market gains, but not for any overt or interesting reason.
09:00 AM
Flat to slightly stronger overnight with additional gains at 8am. MBS up almost a quarter point and 10yr down 5.5bps at 4.214.
12:48 PM
Some weakness into 11am, but bouncing back since then. MBS and Treasuries both at same levels as last update.
02:55 PM
Heading out right in line with the same old levels. MBS up 6 ticks (.19) and 10yr down 5.1bps at 4.218.
Download our mobile app to get alerts for MBS Commentary and streaming MBS and Treasury prices.
Amy Yzaguirre and her husband bought a home in Oregon with a 2.5% interest rate in 2023.
The lower mortgage rate, attained via an assumable mortgage, saves them $40,000 over 28 years.
Yzaguirre and her husbandhave used their savings to pay off medical debt and purchase a new car.
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This as-told-to essay is based on a conversation with Amy Yzaguirre, 40, a student and barista. She and her husband purchased a home with an assumable mortgage in Tigard, Oregon, in March 2023. An assumable mortgage allows qualifying buyers to acquire the interest rate, current principal balance, and other conditions of a seller’s existing loan. Not all loans can be assumed. The essay has been edited for length and clarity.
I grew up in the Portland, Oregon, area but moved to Boise, Idaho, in 2017. In 2022, my husband and I decided to move back to Oregon.
My husband had applied for some jobs in Portland and got a position, but we had just refinanced our Boise home. Since we had signed a no-flip clause, we couldn’t sell it until April 2022.
We planned that he would move to Portland and live with a friend while our son and I stayed back and got the house ready to be sold in April. Then, we would join him and buy a house.
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But in January 2022, I was diagnosed with stage 4 non-Hodgkin’s lymphoma. I didn’t want to undergo half of my chemo treatment in Boise and the other half in Portland, so we had to figure out a way to be together as a family while I underwent chemotherapy.
Yzaguirre and her husband in front of their RV.
Courtesy of Amy Yzaguirre
We had to keep the house until April, but we couldn’t afford to pay two mortgages or pay rent and a mortgage. A family friend gave us the idea to buy an RV and live on my parents’ land in Oregon. We lived there for eight months. It was pretty rough, but we made it work.
In March of 2022, we started looking at houses through our real-estate agent. I was in the middle of chemo, but on the days that I would feel good, we would meet up with brokers.
One suggested, “To get the type of mortgage loan that you want, you need to wait until you’re back to work.” So, we decided to pause our home search until then. While waiting, we got our credit in a good spot. When August came around and I got a job, we started seriously looking at houses.
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Finding an affordable home to buy was difficult
We wanted to live in the suburb that my parents lived in, called Tigard, but the area was too expensive for us, and the real-estate market was fairly competitive.
It’s funny how an area can be a nice, family-friendly, affordable place to live, and then all of a sudden, it becomes overpopulated and it’s not nearly as reasonable as it used to be.
We eventually decided to look in the Sherwood area instead. At this point, I had beaten cancer and was in remission. My husband and I were excited that we could take the next step and buy a new house.
We qualified for a substantial loan through our mortgage company, but we didn’t want our monthly payments to be too high. We set our budget for a home at no more than $450,000 — but even that was a bit of a stretch.
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Amy Yzaguirre’s Oregon home.
Courtesy of Amy Yzaguirre
As we looked, we really couldn’t find many homes that checked all the boxes for that amount.
But in September 2022, we found a townhouse that was on the market for $416,000. On a flyer for the home, its seller had written that if we wanted to assume her loan, she was locked in at 2.5%.
That didn’t necessarily draw us in because we didn’t quite know what that meant.
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I was more interested in the fact that it was a 1,500-square-foot townhouse that had everything we wanted, like a backyard, a big garage, and an open floor plan with hardwood floors.
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At the time, I believe mortgage rates were close to 6%. If we had a traditional mortgage, our monthly payment would have been about $3,000 a month. I remember being like, “OK, that’s pretty high, but I think we can make it work. We’re just going to have to be really careful.”
An assumable mortgage was too irresistible to pass up
We told our real-estate agent about the home and asked her what an assumable mortgage was. She said, “You’ll have to talk to our mortgage broker. I don’t really have any experience with that and don’t know what it entails.”
I asked the mortgage broker, and he admitted, “Well, we haven’t dealt with this in probably about 30 years, so I’m not entirely familiar with the process. But essentially, when you assume a loan, you’re taking over the seller’s mortgage. If you qualify, you can adopt their locked-in rate, and you don’t have to pay current mortgage rates.”
He warned us that the seller’s mortgage company was not going to hold our hand through the process. But if we were willing to put in a rigorous amount of work and do a lot of bugging, we should definitely try it because it would save us a lot of money.
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I did the math. The seller was locked in at 2.5%, so if we qualified to assume the loan, our mortgage would be a little over $2,100 a month versus the over $3,000 we would be paying with a traditional mortgage at current market rates. It would save us over $40,000 in the long run. That would give us wiggle room and allow us to continue our lifestyle instead of having to scale back.
It sounded amazing, so my husband and I decided to pursue the loan assumption.
It’s not easy assuming a loan — and it took forever
In March 2023, we purchased our home for $418,900 and made a down payment of $48,000. The home had a 30-year fixed-rate mortgage, with 28 years left on a $383,000 Federal Housing Administration loan.
We worked with Flagstar to assume the mortgage, and they assigned us an advocate. He was really nice and helped us through the process.
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In the end, we ended up submitting over 200 documents, and the process took three full months.
At a certain point, my husband was over it and just wanted to go with a normal mortgage. I had to assure him I could take care of it and that it would all be worth it — we just had to be patient.
Yzaguirre’s husband and son.
Courtesy of Amy Yzaguirre
The mortgage broker we originally spoke to was right — as the company processing the assumable mortgage isn’t making any money, you really have to advocate for yourself, jump in there, and ask questions.
I tell anybody who has asked me about assuming loans that it’s going to take a long time and it will be grueling. The process will humble you in some ways, too, because you start doubting yourself, like, “Am I a horrible financial person? Why did they need so much information? Am I not doing this right? Is there something that I’ve done wrong?”
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But once you get through the process, you should be able to get it.
It just takes time.
The hard work getting the assumable mortgage was worth it
After living in a tiny 21-foot RV, buying a home gave us freedom and a new beginning. It also helped me not feel boxed in anymore.
Amy Yzaguirre and her husband.
Courtesy of Amy Yzaguirre
Even though I was fortunate to have good insurance during chemotherapy — once I hit a certain deductible, insurance covered the rest — and have excellent insurance through my current job, I still had quite a few medical bills to pay off.
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With the extra money we have saved on our mortgage payment, I’ve been able to pay them down.
We also used the extra money to pay off other debt and purchase a Toyota Tacoma with cash — we don’t have a car payment at all.
We’re not living grand or extravagantly, but at least we’re not having to eat ramen every night. Knowing that we worked so hard for this lifestyle and achieved it ourselves, I feel like we’re truly living life to the fullest.
As the broader market continued rubbing its eyes in disbelief over the Fed’s exceptionally calm attitude on inflation, bonds continued to improve today. Stronger bonds mean lower rates. The average mortgage lender was able to drop rates to the lowest levels in nearly 2 weeks–just a hair above March 11th levels.
Most of the bond market improvement was in place before 9am and things were very calm after that. This meant minimal mid-day price changes.
Next week has less by way of consequential calendar events compared to this week and it’s also made shorter by the Good Friday Holiday closure. After that, volatility risks will be increasing quickly as the first week of April brings several highly consequential reports.
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What a difference a month makes: Economists at Fannie Mae no longer expect mortgage rates to fall below 6 percent this year or next and believe that “dual affordability constraints” of high home prices and mortgage rates will also keep 2024 home sales from hitting a previously forecast 5 million mark.
Last month, Fannie Mae’s eight-member forecasting team was projecting that rates on 30-year fixed-rate mortgages would drop to an average of 5.9 percent by the final three months of the year and that sales of new and existing homes would total 5.0 million.
In their latest monthly housing forecast Tuesday, Fannie Mae’s Economic and Strategic Research (ESR) Group projected mortgage rates will average 6.4 percent during Q4. While 4.91 million homes are expected to change hands this year, deals will be driven primarily by households that can no longer put off moves due to life events.
Doug Duncan
“The housing market is likely to continue to face the dual affordability constraints of high home prices and elevated interest rates in 2024,” Fannie Mae Chief Economist Doug Duncan said in a statement. “Hotter-than-expected inflation data and strong payroll numbers are likely to apply more upward pressure to mortgage rates this year than we’d previously forecast, as markets continue to evolve their expectations of future monetary policy.”
Even if mortgage rates stay elevated, sales of new and existing homes are expected to be stronger than last year, although the projected rebound isn’t quite as strong as Fannie Mae had forecast last month.
“We believe an increasing number of transactions will be driven by households who can no longer put off their moves simply due to interest rate lock-in effects because they need to move for life event reasons,” Fannie Mae economists said in commentary accompanying their latest forecast.
Weaker rebound in 2024 home sales projected
Source: Fannie Mae housing forecast, March 2024.
Sales of existing homes, which make up the bulk of most real estate agents’ businesses, are now projected to grow by only 3 percent in 2024, to 4.21 million. That’s about 47,000 fewer existing home sales than forecast in February.
Sales of new homes are expected to grow by close to 5 percent this year, to 699,000, which is down 35,000 from last month’s forecast for 734,00 new home sales in 2024.
“While existing sales rose 3.1 percent in January to an annualized pace of 4.0 million, these increases reflected mortgage rates in November and December,” Fannie Mae economists noted. “Pending sales, which lead closings on average by a month or two, fell in January by 4.9 percent, pointing to a likely pullback in February.”
Diminished expectations for lower mortgage rates
Source: Fannie Mae housing forecast, March 2024.
Last month, Fannie Mae forecasters were predicting that rates on 30-year fixed-rate mortgages would fall to 5.9 percent in Q4 2024 and 5.7 percent in Q4 2025. The latest forecast is that rates will make a more gradual descent to 6.0 percent by Q4 2025.
“Strong headline jobs numbers and hotter-than-expected inflation data … led financial markets to price in a less aggressive rate-cutting path by the Federal Reserve,” Fannie Mae economists said in predicting that mortgage rates have less room to come down than previously thought.
While economists with the Mortgage Bankers Association predicted in February that mortgage rates would drop to 5.5 percent by Q4 2025, their March forecast hadn’t been issued Tuesday.
This year’s rally in mortgage rates kicked off with a surprisingly strong jobs report on Feb. 2, which put to rest speculation that the Federal Reserve might begin lowering the short-term federal funds rate in March.
Purchase mortgage applications fell for five consecutive weeks before mortgage rates began to ease again in early March. But more recent inflation data has been pushing mortgage rates higher again since March 11.
The CME FedWatch Tool, which tracks futures market investors’ expectations of the Fed’s next moves, on Tuesday put the odds that the Fed will approve one or more rate cuts by June 12 at just 59.5 percent, down from 76.2 percent on Feb. 16.
But it’s not just when the Fed starts cutting short-term rates, but how deeply it might cut over the next two or three years that’s of importance to investors who fund most mortgages.
“In our view, whether the Fed begins cutting interest rates in June or later in the year is likely to have only a small impact on the macroeconomy and mortgage rates,” Fannie Mae economists said. “In contrast, we believe the market’s expectations of the cumulative change in the fed funds rate over the next two to three years will likely have a more meaningful impact on mortgage rates.”
Unlike the short-term federal funds rate, the Fed doesn’t have direct control over mortgage rates, which are determined largely by investor demand for mortgage-backed securities (MBS). But having purchased trillions of dollars in MBS and Treasurys to keep interest rates low during the pandemic, the Fed does have influence in MBS markets that determine mortgage rates.
“Quantitative tightening” — the Federal Reserve’s ongoing program to trim $35 billion in mortgages from its balance sheet each month — could keep mortgage rates from falling dramatically this year.
When Fed policymakers meet Wednesday, they’re expected to keep their target for the short-term federal funds rate at 5.25 percent to 5.50 percent. But Fannie Mae economists say bond market investors are expecting some discussion of the quantitative tightening policy, which Federal Reserve Governor Christopher Waller has said is falling short of expectations.
In a March 1 speech, Waller said he’d like to see the Fed reduce its $2.4 trillion in mortgage holdings to zero. But because few homeowners have an incentive to refinance their existing loans, the Fed has been falling short of its target of reducing its MBS holdings by $35 billion a month.
Rather than actively selling MBS, the Fed has been letting those investments roll off its balance sheet passively, by not replacing assets that mature. But that strategy has only been trimming the Fed’s MBS balance sheet by about $15 billion a month.
To hit the $35 billion a month target, the Fed would have to start selling MBS. Even the threat of such a move might push mortgage rates higher, prompting real estate industry groups to plead with the Fed in October to go on record that it would not sell mortgages the central bank bought during the pandemic.
Refinancing projected to bounce back from anemic levels
Source: Fannie Mae housing forecast, March 2024.
With home prices expected to stay elevated, purchase mortgage originations are expected to post 12 percent growth this year, to $1.367 trillion, a downgrade of $90 billion from last month’s forecast, followed by 13.5 percent growth in 2025, to $1.551 trillion.
“We have downgraded our outlook for purchase originations due to downgrades to the home sales forecast (which in turn stems from a higher mortgage rate outlook), as well as incoming data indicating a continued higher cash share of purchase transactions occurring,” Fannie Mae economists said.
Refinancings are projected to grow 60 percent this year from last year’s anemic levels, to $397 billion, or $62 billion less than forecast in February. Next year Fannie Mae is forecasting another 58 percent increase in refinancing volume, to $626 billion, as lower rates give more homeowners an incentive to refinance.
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Rather than easing back from the January level as expected, existing home sales shot significantly higher in February, The National Association of Realtors® (NAR) said pre-owned single-family houses, townhouses, condominiums, and cooperative apartments sold at a seasonally adjusted annual rate of 4.38 million units. This is an increase of 9.5 percent from the 4.0 million unit pace the previous month and the largest monthly increase since last February. Sales still trailed that month’s 4.53-million-unit rate by 3.3 percent.
Analysts polled by Econoday had a consensus estimate for sales of 3.92 million units while Trading Economics had projected the rate at 3.94 million.
Single-family home sales grew to a seasonally adjusted annual rate of 3.97 million in February, a 10.3 percent gain, but were down 2.7 percent year-over-year. The annual sales rate for condos and coops (410,000 units) was 2.5 percent higher than in January, but 8.9 percent below the February 2023 pace.
Despite the increase in sales, the number of homes available for sale also climbed, rising 5.9 percent from January and 10.3 percent from the previous February to 1,07 million units. This is estimated at a 2.9-month supply at the current rate of sales. Still, inventory remains well below the five-to-six-month supply considered a balanced market.
The median existing home price for all housing types in February was $384,500, an increase of 5.7 percent from $363,600 a year earlier. It was the eighth consecutive month of year-over-year price gains and was the highest price ever recorded for the month of February. The median price for a single-family home was $388,700, a 5.6 percent annual increase while condos appreciated by 6.7 percent to a median of $344,000.
First-time buyers were responsible for 26 percent of the month’s sales and individual investors or second-home buyers accounted for 21 percent. Thirty-three percent of sales were all-cash. Properties typically remained on the market for 38 days in February, up from 36 days in January and 34 days in February 2023.
Sales rose in three of the four major regions compared to January but remained below the pace a year earlier in all four. For the fourth consecutive month, the Northeast posted a sales rate of 480,000 units. This was 7.7 percent below the previous February’s number. The median price in the Northeast was $420,600, an increase of 11.5 percent from one year ago.
“Due to inventory constraints, the Northeast was the regional underperformer in February home sales but the best performer in home prices,” NAR chief economist Lawrence Yun said. “More supply is clearly needed to help stabilize home prices and get more Americans moving to their next residences.”
In the Midwest, existing home sales rose 8.4 percent to an annual rate of 1.03 million, a 3.7 percent deficit year-over-year. The median price moved higher by 6.8 percent to $277,600.
Existing home sales in the South jumped 9.8 percent from January to an annual rate of 2.02 million, down 2.9 percent from one year earlier. The median price in the South was $354,200, up 4.1 percent from last year.
The greatest increase was in the West with a surge of 16.4 percent compared to January. The annual rate of 850,000 units was 1.2 percent below sales the prior year. Prices also surged, rising 9.1 percent to $593,000.
National Association of Home Builders (NAHB) analyst Fan-Yu Kuo, writing in the Eye on Housing blog compared results of NAR’s Pending Home Sales Index (PHSI), a measure of signed purchase contracts thought to be a leading indicator of existing home sales, to recent completed transactions. Kuo said the PHSI fell from 78.1 to 74.3 in January. On a year-over-year basis, pending sales were 8.8 percent lower than a year ago per the NAR data.