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In less than two years, mortgage rates have more than doubled. At the end of 2021, the average 30-year fixed-rate mortgage had a 3.11% interest rate, according to Freddie Mac. Now, at the beginning of November 2023, the average has climbed to 7.94%.
The picture isn’t necessarily any brighter for other mortgage types either. For an adjustable rate mortgage (ARM), the average 5/1 ARM (meaning the interest rate is fixed for five years and then changes once per year after) has an annual percentage rate (APR) of 8.16%, while a 10/1 ARM comes in at 8.23%, according to Bankrate.
But will the picture look different in 2024? It depends who you ask. Some experts take a stronger view on rates falling in 2024, while others are less certain that will happen. In general, though, most seem to think that mortgage rate drops are more likely to occur toward the second half of 2024, though the change might be relatively small.
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Will mortgage rates go down in 2024?
Fannie Mae, for example, projects 30-year fixed-rate mortgages will start 2024 at an average of 7.1% and fall to 6.7% by Q4 2024.
“In 2024, do not anticipate mortgage rates to drop significantly. The current market environment leans towards stability rather than volatility and fear,” says Nathaniel Pitchon-Getzels, a buyer’s agent and listing agent at Compass.
“Before we see rates come down, it’s possible we’ll experience another rate increase. If they do decrease, it’s likely to be a gradual shift, possibly occurring at the end of the second quarter or the beginning of the third quarter,” he adds.
Rhonda Fisher, a real estate broker at Trust Equity Group and eminent domain expert with Consumer Notice, takes a similar view.
While she says she hopes mortgage rates come down in 2024, “the economic forecast suggests otherwise. With a strong employment market and inflation not decreasing as quickly as hoped, it doesn’t appear the Federal Reserve will be able to bring down rates anytime soon. The current rates are slated to continue until next year.”
Depending on economic variables like inflation, however, it’s possible that overall interest rates, including mortgage interest rates, will trend downward next year.
“If inflation and the economy weaken then we should expect to see interest rates lower toward the end of 2024,” says Fisher.
One way to get an idea of when mortgage rates are turning the corner and heading lower is to see when mortgage lenders stop making discount points mandatory. In the current environment, lenders often require homebuyers to pay money upfront in exchange for lower mortgage rates, in order for lenders to then be able to sell those loans to investors, explains Dan Green, CEO of Homebuyer.com.
“If you want to look smart and predict when mortgage rates will fall, keep an eye on discount points. Discount points will be a leading indicator for next year’s rates. When lenders start charging fewer points to buyers, that’s your signal that rates are about to drop,” he says.
He also thinks rates for different common loan types will generally move cohesively.
“Mortgage rates are generally close for the four major loan types – conventional, FHA, USDA, and VA. Over the last five years, VA and USDA loans averaged 0.25 percentage points below conventional loans, which averaged 0.15 percentage points lower than FHA loans. Buyers shouldn’t expect much change there,” says Green.
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Navigating the real estate market in 2024
If rates aren’t expected to drop significantly in 2024, what does that mean for buyers and current homeowners?
“Exactly what I always say to folks: what are your goals, what are you hoping to accomplish?” says Fisher. “For example, if a homeowner needs to make home improvements or renovations that are costly, a cash-out refinance might prove financially better than a personal loan.”
Some homebuyers also might be better off buying now than waiting to see if mortgage rates in 2024 drop.
“In the upcoming year, buyers need to be strategic and act promptly if they want to purchase a house. Waiting may lead to substantial losses in equity because property values continue to rise,” says Pitchon-Getzels.
Some sellers are also offering concessions, such as rate buy-downs in this environment, adds Fisher.
Still, it’s important to be mindful of what you can truly afford. Even if you think interest rates will drop and you can refinance later, that can be a risky strategy.
“When you buy a home, you have to expect that you’ll make its payments for the next 30 years because, even if mortgage rates drop, there’s no guarantee you’ll be eligible to refinance,” says Green. “What if you take a pay cut? What if you fall ill? What if life throws you a curveball?”
Instead, he says, “the best strategy for a homebuyer is to pick a mortgage and a payment that’s comfortable and stick with it. If the market improves and refinancing is possible, that’s terrific and lucky. But if refinancing is never an option, that’s okay, too, because the payment you’re making is within your zone of comfort.”
If you are in the market for a mortgage, be sure to shop around with different mortgage providers to see where you can get the best rate. Even a small difference in interest rates can add up to thousands of dollars in interest over the life of your loan, depending on the specifics, so it’s important to find the best fit for your circumstances.
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