If you’ve been sitting on the housing market sidelines because of sky-high mortgage rates, there’s good and bad news heading into 2024. The good? Mortgage rates are expected to drop in the new year. The bad? They probably won’t drop as much as you’d like.
“The pandemic was too hot; 2023 was too cold,” says Odeta Kushi, deputy chief economist at First American Financial Corporation, a title insurance and settlement services provider. “2024 won’t be just right, but it will be heading in a normalizing direction.”
Mortgage rates climbed for most of 2023, reaching nearly 8%—a level not seen in two decades. Though a far cry from the double-digit highs of the 1970 and 80s, for hopeful buyers, those rates crushed affordability. And for would-be sellers, they had a lock-in effect. Homeowners who might have otherwise sold instead stayed put not wanting to lose existing—much-lower—interest rates.
Keeping with many other housing economists, Kushi expects mortgage rates to decline in 2024—but only a modest amount. Should those predictions ring true, the question is whether the drop will be enough to shift housing affordability in the right direction.
How far could mortgage rates drop in 2024?
The consensus among industry professionals is that mortgage rates will gradually decline across 2024. Here’s where experts are predicting mortgage rates will land by the end of 2024:
Source
Projected 30-year mortgage rate (by end of 2024)
Mortgage Bankers Association
6.1%
Fannie Mae
6.5%
Realtor.com
6.5%
Redfin
6.6%
National Association of Realtors
6 to 7%
At the close of 2023, the average rate on a 30-year fixed-rate mortgage was 6.61%, according to Freddie Mac. While that’s about average historically—and down more than a full percentage point since rates peaked at 7.79% in October—such high rates were unthinkable just two-years ago.
Back then, the Federal Reserve was holding short-term interest rates near zero to spur the pandemic-battered economy, and mortgage lenders were offering rates below 3%. This pushed up demand for mortgages from home buyers, as well as from homeowners looking to refinance existing loans. Once the Fed started raising rates to fight inflation in March 2022, though, mortgage lenders reversed course. The result was steadily rising home-financing costs, slowing home sales and essentially nonexistent refinance demand.
The year ahead is poised to be another turning point in the mortgage world. With inflation seemingly under control, the Fed has signaled it could begin cutting interest rates in 2024, likely around midyear. While the Fed doesn’t directly determine mortgage rates, it’s likely that lenders will again follow the Fed’s lead. “Our modeling suggests a gradual, steady decline,” says Danielle Hale, chief economist at Realtor.com. (News Corp, parent of The Wall Street Journal, operates Realtor.com.)
But there are no guarantees. “The primary factor for mortgage rates is ongoing improvement in inflation,” Hale says. “If we don’t see that progress on a sustained basis, we would be looking at a very different, higher interest rate environment.”
If inflation starts rising again, rates may stay higher for longer. On the other hand, if inflation falls below the Fed’s 2% target or the economy shows signs of distress, the Fed may move to lower rates sooner than anticipated.
“After a couple of years of exceedingly low rates, we may need to redefine what a normal market is supposed to look like,” says Miki Adams, president of CBC Mortgage Agency, a mortgage lender and down payment assistance provider in South Jordan, Utah.
What lower mortgage rates could mean for home buyers
A fall in mortgage rates is obviously good news for hopeful home buyers. But will those lower rates be a game changer? Likely not for most consumers. Here’s what we can expect falling mortgage rates to look like on the ground.
Affordability will improve—a bit
Lower rates will make mortgage payments lower, but buyers shouldn’t expect any drastic improvements in affordability. On a $500,000 loan, for example, a 7% rate would mean a monthly mortgage payment of just over $3,300. At Realtor.com’s projected year-end 6.5% rate, that payment would drop to $3,160—a difference of only $140.
If rates fall as far as MBA’s predictions—6.1% and the lowest among industry forecasts—the savings could be more notable. In that same scenario, the savings would be about $270 a month.
There could be more homes for sale—and slower price growth
The high mortgage rates of 2023 haven’t just stymied buyers. They’ve also kept existing homeowners stuck in place—80% of whom have current mortgage rates under 5%.
There’s hope that lower rates in 2024 could spur some of these homeowners to enter the market, thereby increasing listings and putting downward pressure on prices. But again, experts say the impact will likely be minimal (at least from a national perspective).
“Certainly, rates dropping will help to unlock some homeowners, especially those sitting on a ton of equity,” Kushi says. “But it won’t be sufficient to unlock the majority of existing homeowners.”
Fannie Mae currently projects a 4.1% increase in home prices by the end of next year (down from 5.7% price growth this year). In some competitive housing markets, though, the impact of more listings could be felt more significantly. In Dallas, for instance, Realtor.com is projecting an 8% fall in home prices next year; over 5% in San Francisco.
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Multiple headwinds kept buyers and sellers on the sidelines of the housing market this year.
But that could change as interest rates fall and builders keep adding inventory.
These are Wall Street’s top predictions for where the US housing market is headed in 2024.
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Rising prices and steep borrowing costs in the US housing market kept homebuyers in a year-long limbo, with a national property shortage adding to headwinds in the sector.
While home prices dropped sharply through 2022, they rallied for nine-straight months beginning in January, recently hitting fresh all-time highs. Meanwhile, as the Federal Reserve raised borrowing costs, mortgage rates jumped to levels not seen sine the mid-2000s.
Finally though, conditions appear poised to shift, especially given mounting bets that the Fed will loosen monetary policy in 2024.
From supply to price growth, here are top experts’ outlooks for 2024 housing market.
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Realtor.com: A “bit of a break”
As the Fed turns dovish, the 30-year fixed mortgage rate will average 6.8% next year, Realtor.com predicted in early December. In the last week of the month, the rate slid to 6.61%.
This could have the effect of slowing demand as homebuyers feel less pressure to race against higher borrowing costs. The listing agency expects prices to dip by 1.7%, having risen 3% in 2023.
“It will be a bit of a break after what have been pretty relentless home price increases,” Chief Economist Danielle Hale said, adding: “Some of the pressure and sense of urgency will start to let up.”
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However, the volume of existing homes for sale will tumble 14%, as the mortgage rates at the level the firm predicts will still be more expensive than what 85% of current borrowers are paying.
Goldman Sachs: Inventory picks up
Goldman Sachs estimates existing sales will only dip slightly in 2024, before rebounding to 4.24 million the year after. Meanwhile, new home sales will climb from this year’s 680,000 to 723,000 in 2024.
That’s as housing starts will inch higher, climbing from 1.39 million to 1.335 million in 2024. New home construction has substantially increased this year, as homebuilders jumped on the lack of housing.
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The bank expects muted price growth next year.
Redfin: Prices will fall 1%
The 30-year mortgage rate will average 6.6% by the end of 2024, leading to a 1% drop in home prices, the real estate firm expects.
“Home prices will still be out of reach for many Americans, but any break in the affordability crisis is a welcome development nonetheless,” Chief Economist Daryl Fairweather said.
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Meanwhile, home sales will jump 5%, reaching 4.3 million. Still, Redfin says high costs will push rent demand higher, while there could be an uptick in priced-out Americans moving in with their parents.
Zillow: Prices will flatten
Buyers shouldn’t expect home prices to fall much, but the rate of growth will level off and allow Americans’ incomes to catch up, the real estate platform predicted in a late-November note.
Mortgage rates will probably hold at current levels in the coming months, as the persistent slowdown in inflation makes an uptick in rates unlikely.
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“Taken together, the cost of buying a home looks to be on track to level off next year, with the possibility of costs falling if mortgage rates do,” Zillow researchers said.
Fannie Mae: Price growth will lose steam
Mortgage rates will average 6.7% in 2024, not far off levels seen this summer, the government-sponsored mortgage finance agency predicted.
Total home sales will jump to 4.8 million, fueled by a gradual recovery in existing home sales, Fannie Mae said. A modest economic downturn will cause a shallow decline in new home sales, though the contraction won’t diminish construction volumes in the long run.
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The agency expects prices to continue appreciating, albeit at a slower pace. Citing an October survey, it forecasts 2.4% price growth next year.
After two years of sharp declines, existing-home sales are poised for improvement in 2024. But first, this slice of the housing market must weather the rest of a rocky year in 2023, with existing-home sales expected to end up 18% lower than those of 2022, according to the National Association of REALTORS®. That puts these transactions on track for their worst year in more than a decade.
NAR Chief Economist Lawrence Yun joined other leading housing analysts Tuesday at NAR’s virtual Real Estate Forecast Summit to discuss sales projections heading into 2024—and the experts agreed that better days are ahead for the real estate market.
Mortgage rates likely have peaked and are now falling from their recent high of nearly 8%. NAR predicts the 30-year fixed-rate mortgage to average 6.3% in 2024; realtor.com® projects 6.5%. This likely will improve housing affordability and entice more home buyers to return to the market, Yun says. NAR’s data shows that rates near 6.6% enable the average American family to afford a median-priced home without devoting more than 30% of their income to housing, the threshold commonly used to measure affordability.
NAR is projecting that existing-home sales will rise 13.5% and new-home sales—which are up about 5% this year, defying market trends—could increase another 19% by the end of next year.
Markets to Watch in 2024
Some housing markets likely will experience higher sales upticks in 2024 than others. “Job growth will be a determinant for long-term housing demand,” Yun said.
NAR evaluated 100 of the largest U.S. metro areas to identify the markets with the largest pool of potential home buyers, the greatest likelihood for home price appreciation and more. The following markets have the most pent-up housing demand for 2024, according to NAR:
Danielle Hale, chief economist at realtor.com®, said at Tuesday’s summit that while she’s optimistic the housing market will improve in 2024, inflation is the issue that could derail optimistic real estate forecasts. If inflation doesn’t continue to improve, she said, it could raise long-term interest rates, which then could discourage more homeowners from selling and prolong the inventory bottlenecks in the market. Younger generations of home buyers may continue to be sidelined by higher housing costs and remain as renters. “That could have huge ramifications for the housing market,” Hale said. “The inflation data is very important to watch.”
Overall inflation has been easing, although “shelter inflation” continues to rise. The latest reading of the Consumer Price Index showed that inflation decreased to 3.1% in November. (The Federal Reserve’s target for the inflation rate is 2%.) Yun said an “oversupply” of new apartment units will hit many housing markets in the coming months, which could bring rental rates down and help better control inflation. Hopefully, he added, that will disincentivize the Fed to continue raising its short-term rates.
Regardless of inflation and mortgage rates, the 2024 housing market likely will remain challenging, particularly for first-time buyers who are unable to leverage the proceeds from a previous home sale, summit panelists noted. Plus, amid record low inventory, finding a home to buy will be a top hurdle. Homeowners remain reluctant to sell and give up the low mortgage rates they locked in two years ago. Further, homebuilders have underproduced for decades, leading to a shortage of 5 million housing units nationwide, according to NAR research.
However, current homeowners are in an envious position: With rapid home appreciation in recent years, owners will grow their nest egg in 2024. Even those in markets that are expecting slight dips next year will be able to weather the drop. Home price appreciation has jumped by about 5% over the past year alone. The typical homeowner has accumulated more than $100,000 in housing wealth over the past three years, NAR’s data shows. Plus, the wealth comparison between homeowners and renters continues to be significant: The typical homeowner has $396,200 in wealth versus $10,400 for renters, according to Federal Reserve data. “Over the long term, homeowners build wealth over time,” Yun said.
Federal Reserve left its key short-term interest rate unchanged again Wednesday, hinted that rate hikes are likely over and forecast three cuts next year amid falling inflation and a cooling economy.
That’s more rate cuts than many economists expected.
The decision leaves the Fed’s benchmark short-term rate at a 22-year high of 5.25% to 5.5% following a flurry of rate increases aimed at subduing the nation’s sharpest inflation spike in four decades. The central bank has now held its key rate steady for three straight meetings since July.
That provides another reprieve for consumers who have faced higher borrowing costs for credit cards, adjustable-rate mortgages and other loans as a result of the Fed’s moves. Yet Americans, especially seniors, are finally reaping healthy bank savings yields after years of paltry returns.
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Is a soft landing in sight? What the Fed funds rate and mortgage rates are hinting at
Will the Fed raise interest rates again?
The central bank didn’t rule out another rate increase as it downgraded its economic outlook for next year while lowering its inflation forecast. In a statement after a two-day meeting, it repeated that it would assess the economy and financial developments, among other factors, to determine “the extent of any additional (rate hikes) that may be appropriate to return inflation to 2% over time.”
Fed Chair Jerome Powell said at a news conference, noting the Fed’s key rate is “at or near its peak.”
while the Dow Jones Industrial Average closed at a record high after rising 1.4% following the Fed’s signals that it’s probably done lifting rates and is forecasting three cuts next year. The 10-year Treasury was down to about 4% from 4.21% on Tuesday.
Last month, Powell said high Treasury yields, if persistent, likely would constrain the economy and require fewer Fed rate increases,
In its statement Wednesday, however, the central bank didn’t acknowledge the recent decline in Treasury yields, suggesting yields are still relatively high and could spike again, crimping the economy.
“Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation,” the Fed said, repeating the language of its previous statement.
Is inflation really slowing down?
The Fed’s middle-ground approach may have been cemented Tuesday by a mixed report on the consumer price index. The good news was that overall inflation barely budged in November amid falling gasoline prices, pushing down annual price gains to 3.1% from 3.2%, still well above the Fed’s 2% goal.
The Federal Reserve System is the U.S.’s central bank.
When does the Fed meet again?
The first Federal Reserve meeting of the new year will be from Jan. 30 through 31.
Federal reserve calendar
Jan. 30-31
March 19-20
April 30- May 1
June 11-12
July 30-31
Sept. 17-18
Nov. 6-7
Dec. 17-18
The U.S. economy was strong in the third quarter as consumers continued to spend despite high interest rates and inflation.
The value of all services and products generated in the U.S., or GDP, rose at a seasonally adjusted 4.9% for the year in the months spanning July to September, according to the Commerce Department. That was more than twice the 2.1% increase in the previous quarter and the most aggressive pace of growth since the end of 2021 when the economy surged back from a recession sparked by the pandemic.
a recession over the next year, down from the 61% odds forecast in May.
Barclays predicted a loss of roughly 375,000 jobs by the middle of next year. But consumer spending remains robust despite high inflation and interest rates that are making credit card use and consumer loans more expensive. And that may help stave off a recession, says Barclays economist Jonathan Millar.
What does FOMC stand for?
The FOMC is the Federal Open Market Committee, the voting body responsible for setting interest rates. The 12-member committee includes seven members of the Board of Governors and five of the 12 Reserve Bank presidents.
What causes inflation?
Inflation can have many roots. Typically, it’s caused by “a macroeconomic excess of spending over the economy’s relative ability to produce goods and services,” said Josh Bivens, the director of research at the Economic Policy Institute, a left-leaning think tank based in Washington D.C.
That means more people are wanting items and services than there is adequate supply, leading producers to raise prices.
“If everyone in the economy, tomorrow, decided they weren’t going to save any money from their paychecks, and they’re just going to spend every last dollar out of the blue, they would all run to the stores and try to buy things,” Bivens said. “But, producers haven’t produced enough to accommodate that big surge of across-the-board spending. So, you would see prices bid up.”
Inflation can also happen when there are too few producers, or there aren’t enough employees to provide the coveted products and services, Bivens said.
Finally, economies also have some “built-in inflation” to help keep inflation in check. In the U.S., that target is 2%, meaning businesses can raise prices 2% annually year and that shouldn’t overburden consumers. That’s also the typical cost of living raise offered by employers.
Inflation meaning
Inflation is the term for a “generalized rise in prices,” according to Josh Bivens, head of research at the Economic Policy Institute, a left-leaning think tank based in Washington D.C.
Everything from food to rent can become costlier due to inflation. But it is the overall impact that determines what the inflation rate actually is.
“Inflation, though, really is meant to only refer to all goods and services, together, rising in price by some common amount,” Bivens said. The Federal Reserve’s inflation goal is 2%, which means businesses can hike prices by 2% a year and that shouldn’t cause consumers financial distress. Cost of living increases to workers’ pay are also expected to meet that target to ensure consumers can adequately deal with the rising costs of goods and services.
What is CPI?
In November, the Consumer Price Index (CPI) ‒ a measure of the average shift in prices for different products and services ‒ was 3.1%, down slightly from the month before.
Annual inflation is down dramatically from the 9.1% in June 2022 that marked a 40-year high but remains above the 2% target the Fed sees as the level that signals the rate of price increases is under control.
Why is CPI important?
The Federal Reserve watches two key aspects of the economy, price stability and maximum employment, and those are the main factors it takes into account for its interest rate decisions. The CPI is a primary measure the Fed looks at to help determine if prices are “stable.’’
What is the difference between CPI and core CPI?
Core prices don’t count the volatile costs of food and energy items, giving a more accurate window into longer-term trends.
Are wages going up in 2024?
If you’re deemed a top performer at a company that is offering raises, you’ve got a pretty good chance of getting a pay boost next year.
About 3 out of four business leaders told ResumeBuilder.com they intended to give raises. But half of those company executives said only 50% or less of their staff members would see a pay hike, and 82% of the raises would hinge on performance. For those who do manage to get the salary boost, 79% of employers said the pay hikes would be greater than those given in recent years.
Are U.S. Treasury yields rising?
Not recently.
The 10-year Treasury yield was above 5% in November when the Fed kept rates steady for the second consecutive month the first time it had left the key rate unchanged two months in a row in almost two years.
That led to mortgage rates spiking to almost 8% and pushed up other borrowing costs for consumers and businesses. Stocks meanwhile sank close to a recent low, leading Fed Chair Jerome Powell to say such financial pressures could achieve the same cooling effect on the economy as additional rate hikes.
But in the following weeks, 10-year Treasury yields dipped to 4.2% and stocks rebounded. That might make the Fed resist rate cuts in case the economy heats up and causes the broader dip in prices “to stall at an uncomfortably elevated level,” Barclays says.
Barclays and Goldman Sachs forecast that rate cuts won’t happen until the spring, and that there will be only two, to a range of 4.75% to 5%, with more cuts implemented in the next two years.
When will inflation go back to normal?
It may take a little while.
Inflation’s decline likely “won’t show much progress in coming months,” Barclays wrote in a research note.
Overall price hikes have eased significantly since peaking at 9.1% in June 2022, a four-decade high. And in October, broader inflation as well as core prices experienced a dip, leading to a lower 10-year Treasury yield.
But core prices, which exclude the volatile costs of food and energy, will probably rise 0.3% each of the next three months, Goldman Sachs says. Used cars and furniture have been getting cheaper as the supply-chain shortages of the pandemic end. Meanwhile, health care, auto repairs, car insurance and rent continue to get more expensive, as employers pay higher wages to attract workers amid a labor shortage lingering from the global health crisis.
What is core inflation right now?
Core prices, which leave out the more volatile costs of food and energy, bumped up 0.3% in November, slightly more than the 0.2% uptick seen the previous month. That kept the yearly increase at 4%, the lowest rate since September 2021.
New inflation tax brackets
Inflation may also impact the amount of taxes you have to pay.
The Internal Revenue Service said in its annual inflation adjustments report that there will be a 5.4% bump in income thresholds to reach each new level in next year’s tax season.
In 2024, the lowest rate of 10% will apply to individuals with taxable income up to $11,600 and joint filers up to $23,200. The top rate of 37% will apply to individuals earning over $609,350, and married couples filing jointly who make at least $731,200 a year.
The IRS makes these adjustments annually, using a formula based on the consumer price index to account for inflation and stave off “bracket creep,” which happens when inflation shifts taxpayers into a higher bracket though they’re not seeing any real rise in pay or purchasing power.
The 2024/25 increase is less than last year’s 7% increase, but much more than recent years when inflation was below the current 3.1% inflation rate.
Will Social Security get a raise because of inflation?
Yes, but it will be a lot less than what recipients received in 2023.
The cost-of-living adjustment, or COLA, to Social Security benefits will be 3.2% next year. That’s roughly one-third of the 8.7% increase given in 2023, which marked a forty-year high.
The 2024 COLA hike is above the average 2.6% raise recipients have received over the past two decades, but seniors remain concerned about being able to pay their expenses as well as the increasing possibility Social Security benefits will be reduced in coming years, according to a retirement survey of 2,258 people by The Senior Citizens League, a nonprofit seniors group.
How does raising rates lower inflation?
The federal funds rate is what banks pay each other to borrow overnight. If that rate increases, banks usually pass along that extra cost, meaning it becomes more expensive for businesses and consumers to borrow as rates rise on credit cards, adjustable rate mortgages and other loans. That’s why the funds rate is the key mechanism used by the Federal Reserve to calm inflation.
Simply put, companies and consumers don’t borrow as much when loans cost them more, and that means an overheated economy can cool and inflation may dip.
Will credit card interest rates continue to rise this holiday season?
The Fed’s string of rate hikes, aimed at easing the highest inflation in four decades, are a big reason credit card interest rates have reached record highs just in time for the holiday season.
Some retail credit cards now charge more than 33% interest, topping a 30% threshold that stores and banks were previously able to bypass but seldom did – until now.
“They can charge that much,” said Chi Chi Wu, a senior attorney at the nonprofit National Consumer Law Center. “Credit cards can actually charge whatever they want. It’s a little-known fact.”
The domino effect of a high benchmark rate and soaring credit card interest could put many Americans in financial straits this holiday season.
Though some consumers are paring back to deal with high prices, rising debt and shrinking savings, the average shopper expects to spend $1,652 this year on holiday purchases, according to the consultancy Deloitte, more than was typically spent in the last three years.
A lot of the buying will be done with credit cards. In an October poll of 1,036 shoppers by CardRates.com, nearly 4 in 10 respondents said they intend to have holiday credit card debt in the new year.
The nation’s collective credit card debt was $1.08 trillion, at the end of September, a record high. And the average interest rate was 21%, the highest ever documented by the Federal Reserve.
Savings account impact of high rates
The upside to the Fed’s string of rate hikes has been that consumers were able to earn good interest on their savings for the first time in years. Even when the Fed leaves interest rates unchanged, savers can do well.
Unfortunately, most account holders aren’t making the most of that potential opportunity.
Roughly one-fifth of Americans who have savings accounts don’t know how much interest they’re earning, according to a quarterly Paths to Prosperity study by Santander US, part of the global bank Santander. Among those who did know their account’s interest rate, most were earning less than 3%.
But consumers have time to make a change that could enable them to make more from their savings.
“We’re still a long way from (the Fed) beginning to cut rates,” said Greg McBride, chief financial analyst at financial services platform Bankrate. “This is great news for savers, who will continue to enjoy inflation-beating returns in the top-yielding, federally insured online savings accounts and certificates of deposit. For borrowers, interest rates staying higher for a longer period underscores the urgency to pay down and pay off costly credit card debt and home equity lines.”
The string of Fed rate hikes that began in March 2022 has made it costlier for consumers to borrow as interest rates on credit cards and other loans increased dramatically.
At the same time, inflation has made daily needs more expensive, pushing more Americans to lean on credit cards to get by. But lenders have become more reluctant to issue new cards, so in the midst of the holiday season, more shoppers are seeking higher credit limits, experts say.
In October, the application rate for higher limits rose to 17.8% from 11.2% in the same month the previous year, and from 12.0% in 2019, New York Fed data showed.
For some consumers, a higher limit on a card they already have is about their only option.
“After COVID, inflation and interest rates went out of control … people have less emergency funds for car repairs or buying presents,” said Brandon Robinson, president and founder of JBR Associates, which specializes in retirement strategies. “What they’re doing is using more credit card utilization – over 30% or well over 50% of their credit card allowance – and then can’t get approved for another card because their credit rating is down.”
Inflation is leading more Americans to work multiple jobs
The number of Americans working at least two jobs is at its highest peak since before the COVID-19 pandemic, according to federal data, an uptick that may reflect the financial pressure people are feeling amid high inflation.
Almost 8.4 million people had multiple jobs in October, the Labor Department said, a figure that represents 5.2% of the laborforce, the highest percentage since January 2020.
“Paying for necessities has become more of a challenge, and affording luxuries and discretionary items has become more difficult, if not impossible for some, particularly those at the lower ends of the income and wealth spectrums,” Mark Hamrick, senior economic analyst at Bankrate, told USA TODAY in an email.
People may also be moonlighting to sock away cash in case they’re laid off since job cuts typically peak at the start of a new year.
What is the Federal Reserve’s 2024 meeting schedule? Here is when the Fed will meet again.
What is the mortgage interest rate today?
Mortgage rates are falling, so is it time to buy?
It depends.
First of all, the Fed doesn’t directly set mortgage rates, but its actions have an impact. For instance, when the central bank was steadily boosting its key rate, the yield on the 10-year treasury bond went up as well. Because those bonds are a gauge for the interest applied to an average 30-year loan, mortgage rates increased.
But over the past six weeks, mortgage rates have been declining, averaging 7% for a 30-year fixed mortgage. That’s down from almost 7.8% at the end of October, according to data released by Freddie Mac on Dec. 7.
That may be giving some wannabe homeowners the confidence to start house hunting. For the week ending Dec. 1, mortgage applications rose 2.8% from the prior week, according to the Mortgage Bankers Association.
“However, in the big picture, mortgage rates remain pretty high,” says Danielle Hale, senior economist for Realtor.com. “The typical mortgage rate according to Freddie Mac data is roughly in line with what we saw in August and early to mid-September, which were then 20 plus year highs.”
So, many potential buyers may still need to sit on the sidelines, waiting for rates to drop further, says Sam Khater, chief economist for Freddie Mac. Hale and many other experts believe mortgage rates will dip next year.
Interest rate projection 2024
The Fed is expected to cut interest rates next year, though markets and economists disagree about how many rate cuts there will be.
Futures markets forecast there will be four or five rate cuts in 2024, amounting to a quarter of a percentage point each. The cuts, they predict, should start by spring, and ultimately drop interest rates as low as 4% to 4.25%.
But core prices, which leave out the volatile costs of food and energy and are the metric followed more closely by the Fed, ticked up 0.3% in November, higher than the 0.2% increase the month before. That might make the Fed more hesitant to nip rates in the immediate future.
Goldman Sachs and Barclays expect there to be only two rate decreases in 2024. And Fed Chair Jerome Powell has cautioned in recent public remarks that it was “premature” to talk about rate cuts.
November inflation report
Inflation dipped slightly last month, with falling gas prices mitigating the impact of rising rents.
Consumer prices overall increased 3.1% from a year earlier, slightly below the 3.2% rise in October, according to the Labor Department’s consumer price index. That slower pace moves the inflation rate nearer to the level, reached in June, that was the lowest in over two years. Month over month, prices increased a slight 0.1%.
Core prices, however, which leave out the more erratic costs of food and energy and which are more closely monitored by the Fed, increased 0.3% in November after rising 0.2% the previous month. That means core inflation’s yearly increase remained at 4%, though it’s the lowest level since September 2021.
Home prices will drop next year, but so will inventory, the real-estate site says in its 2024 housing forecast
The 30-year mortgage rate will fall below 7% by April 2024, Realtor.com says in its housing forecast for next year.
The average mortgage rate in 2024 is expected to be 6.8%, and the 30-year may fall to as low as 6.5% by the end of the year, according to Realtor.com’s report.
“We’re gonna to start to see some relief for buyers who have been priced out,” Danielle Hale, chief economist at Realtor.com, told MarketWatch.
“It’s still expensive to buy a house, but instead of getting more expensive, we’ve turned the corner,” she added. “We’re starting to see housing get less expensive.”
Realtor.com sees mortgage rates falling to 6.5% by the end of 2024
A weakening U.S. economy will be the key driver pushing down mortgage rates in 2024, Hale said.
“We expect unemployment to begin to gradually tick up – but we don’t expect to see a huge surge – and the labor market to begin to soften,” she said.
But “more importantly,” Hale added, “we expect inflation to improve.”
The economy has begun showing indications of cooling off. In October, inflation was flat, thanks to cheaper gasoline prices. The job market is also showing some signs of weakness, and the unemployment rate edged up that month to a 21-month high of 3.9%.
Mortgage rates have already begun to fall, Hale noted. They are no longer hovering at the 8% range, thanks to weaker economic data. The 30-year mortgage was averaging 7.29% as of Nov. 22, according to Freddie Mac.
But don’t expect to see rates fall much lower. Even though Realtor.com noted that the historical average for the 30-year mortgage rate between 2013 and 2019 was 4%, home buyers should consider those days long gone.
That period “was not quite a normal housing market,” Hale said. “It seems unlikely that we’ll see mortgage rates get back to that range in the foreseeable future.” Between 2013 and 2019, inflation stayed below 2.5%, according to data from the St. Louis Fed.
“The Fed was constantly worried about inflation that was too low” back then, Hale said.
Below are Realtor.com’s predictions for the housing markets that will see the most and least home price appreciation in 2024.
Home prices to fall 1.7% in 2024
Realtor.com also expects home prices to fall 1.7% over 2024. Sale prices took a dip over the spring and summer this year, but they may stay flat or rise over the rest of 2023, Hale said.
But starting in May 2024, home prices overall may drop. That’s partly because home sellers may cut prices, but it could also be due to a further pullback in homeowners listing their homes. Realtor.com expects existing-home inventory to fall sharply by 14% over 2024, which is steeper than the 5.7% drop in 2023.
That means that the typical monthly cost for a median-priced home could drop to $2,200 in 2024, which would be down from $2,240 in 2023.
The Realtor.com report also suggested strong home price growth in the Midwest and the Northeast. The company expects home prices to grow on an annual basis in 2024 by 10.9% in the Detroit-Warren-Dearborn, Mich., metro area, 10.4% in Rochester, N.Y., and 9.9% in the Des Moines-West Des Moines, Iowa, metro area.
On the other hand, the data indicates a sharp slowdown in home price growth out west. Home prices are expected to fall the most in 2024 in Austin-Round Rock, Texas, by 12.2%, as compared to 2023. Other metros at the bottom of the home price growth list include St. Louis, Mo.-Ill., and Spokane-Spokane Valley, Wash., where prices are expected to fall by 11.7% and 10.2% respectively.
Demand is also expected to be lower, because rates will continue to stay relatively elevated, Hale said.
But lower rates could also convince homeowners who bought with a 3% rate to consider selling, easing the so-called lock-in effect, which could increase inventory.
Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch publisher Dow Jones is also a of News Corp unit.
-Aarthi Swaminathan
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
Mortgage rates dropped for the fourth consecutive week, indicating they may have peaked and convincing some homebuyers to trickle back to the market.
The average rate on the 30-year fixed mortgage declined to 7.29% from 7.44% the week prior, according to Freddie Mac on Wednesday. That marks a half-point decline since the end of October, when the rate hit 7.79%.
The recent rate relief was enough to pull some buyers from the sidelines — even entry-level ones who had been priced out. Still, home prices and rates remain elevated as the inventory chokehold continues, crushing affordability.
Read more: Mortgage rates at 20-year high: Is 2023 a good time to buy a house?
“The Freddie Mac fixed rate for a 30-year mortgage eased further this week, as mixed data continue to keep investors guessing,” Danielle Hale, Realtor.com chief economist, said. “In a few short weeks, mortgage rates have largely erased the sharp climb traversed in October. Nevertheless, the cost of borrowing remains high. Except for the most recent seven weeks, today’s rate is the highest since 2000.”
First-time buyers navigate the market
The volume of mortgage applications for a home purchase increased 4% on a seasonally adjusted basis for the week ending Nov. 17, the Mortgage Bankers Association (MBA) reported Wednesday.
The share of home loans backed by the Federal Housing Administration, or FHA — a popular financing option for first-time homebuyers — increased to 14.8% of all loan applications from 14.4% the prior week. The average loan size for a purchase application was $403,600, the lowest since January 2023.
“This is consistent with other sources of home sales data showing a gradually increasing first-time homebuyer share,” Joel Kan, MBA’s deputy chief economist, said in a press release.
Many first-time buyers are also turning to new construction in the supply-constrained market. The number of new residential construction increased 1.9% monthly to 1.372 million units in October on a seasonally adjusted basis, beating expectations.
But that is far from enough, as demand heavily outweighs supply. The volume of mortgage applications is 20% lower than the same week a year ago, MBA says.
Prospective home buyers leave a property for sale during an open house in a neighborhood in Clarksburg, Md., on Sept. 3. (Photo by ROBERTO SCHMIDT/AFP via Getty Images) (ROBERTO SCHMIDT via Getty Images)
The expensive market has shut out many moderate-income households, giving chances to only higher-income households with a median salary of $107,000, an uptick from last year’s $88,000, a report by National Association of Realtors (NAR) shows.
“Among our first-time homebuyers we saw that their household income rose nearly $25,000 just from the previous year,” Brandi Snowden, director of consumer survey research at NAR, told Yahoo Finance. “They might be needing to add that extra income just to be able to get into the homeownership market.”
While the Federal Reserve has kept its benchmark interest rate between 5.25% to 5.5% in September and October due to moderated inflation, Fed Chair Jerome Powell said more rate hikes are possible if that’s what it takes to bring inflation down to the central bank’s 2% target.
Read more: What the Fed rate-hike pause means for mortgage rates and loans
Higher rates would only complicate the housing market because many homeowners are not selling their homes because they don’t want to lose their current low mortgage rate. Just over 4 in 5 homeowners with mortgages have an interest rate below 5%, and roughly one-quarter have a rate below 3%, Redfin previously reported.
But one expert believes mortgage rates may have already peaked.
“I believe we’ve already reached the peak in terms of interest rates,” Lawrence Yun, NAR’s chief economist, said during the 2023 NAR NXT conference. “The question is when are rates going to come down [more]?”
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
Click here for real estate and housing market news, reports, and analysis to inform your investing decisions.
Mortgage rates dropped significantly in the last few weeks, but the cost of borrowing remains high prompting many homebuyers to wait for even lower rates.
The 30-year, fixed mortgage rate averaged 7.29% for the week ending Nov. 22, according to Freddie Mac‘s Primary Mortgage Market Survey. That’s down significantly from last week’s 7.44% and up from 6.58% the same week a year ago.
HousingWire’s Mortgage Rates Center showed Optimal Blue’s average 30-year fixed rate on conventional loans at 7.283% on Wednesday.
“In recent weeks, rates have dropped by half a percent, but potential homebuyers continue to hold out for lower rates and more inventory,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “This dynamic is reflected in the latest data showing that existing home sales have fallen to a thirteen-year low.”
New construction starts and permits showed surprising strength in October while existing-home sales slumped to their worst reading since 2010.
Except for the last seven weeks, current mortgage rates hit their highest levels since 2000. As a result, rates have to fall further to spur more demand from homebuyers who are grappling with affordability pressures.
“If rates can hold onto this improvement, or notch a further decline, however, this could mean that ‘buying a home’ does seem like a viable new year’s resolution to a greater number of households,” Realtor.com Chief Economist Danielle Hale said in an emailed statement.
US mortgage rates surged to their highest level in nearly 23 years this week as inflation pressures persisted.
The 30-year fixed-rate mortgage averaged 7.31% in the week ending September 28, up from 7.19% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 6.70%.
“The 30-year fixed-rate mortgage has hit the highest level since the year 2000,” said Sam Khater, Freddie Mac’s chief economist, in a statement. “However, unlike the turn of the millennium, house prices today are rising alongside mortgage rates, primarily due to low inventory. These headwinds are causing both buyers and sellers to hold out for better circumstances.”
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.
Mortgage rates have spiked during the Federal Reserve’s historic inflation-curbing campaign — and while a good deal of progress has been made since June 2022, when inflation hit 9.1%, Fed officials say there is still a ways to go.
The Fed’s preferred inflation measure, the core Personal Consumption Expenditures index, is currently 4.2%, which is more than double the Fed’s target of 2%. Economists expect it to drop to 3.9% when the latest reading is released on Friday.
Higher for longer
This week’s mortgage rate surge followed last week’s small move higher, as investors settled in for “higher-for-longer” interest rates after last week’s Fed policy meeting, said Danielle Hale, chief economist at Realtor.com.
Hale said the takeaway from the meeting was that the upward adjustments from the Fed haven’t ended.
“Revised economic projections show that another rate hike this year is definitely on the table, and the expected policy rate in 2024 and 2025 was also higher than previously forecast,” she said. “Market participants are still playing catchup.”
While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them.
Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.
The yield on 10-year Treasuries rose from 4.3% on September 20 to 4.6% as of September 27.
Buyers bowing out
Mortgage applications continued to drop last week, according to the Mortgage Bankers Association, as mortgage rates went higher.
“Rates over 7% and low for-sale inventory continue to create affordability challenges for prospective buyers,” said Bob Broeksmit, MBA president and CEO. “Until rates start to come back down, we anticipate housing market activity will remain slow.”
Markets are experiencing an extraordinarily low number of homes for sale as homeowners stay put with ultra-low mortgage rates that are several percentage points lower than the current rate.
There has been a small uptick in newly listed homes coming to market over the past few weeks, according to Realtor.com, which is seasonally atypical, said Hale.
The first week in October tends to be an ideal week to buy a home, she said, since home prices tend to fall relative to summer highs, and fewer buyers contend for homes. Yet housing inventory remains higher than a typical week, Hale said.
But, she added, mortgage rates will continue to be a wild card, which could make it impossible for some buyers to get in the market now.
Even as demand is dropping, with so few homeowners selling, the market is pushing up prices as those few buyers who remain tussle over the handful of available houses, Hale said.
This combination of higher prices and higher mortgage rates contrasts with easing rents over the past few months. This may cause would-be first-time buyers to wait for home prices and mortgage rates to stabilize and rent instead.
“Buying a starter home is more expensive than renting in all but three major US markets [Realtor.com] studied,” said Hale, “which explains why buyer demand is likely to remain relatively low.”
Mortgage rates this week saw the biggest one-week decline in a year and potential homebuyers waiting for rates to drop responded, said Josh Mettle, division president and co-creator of NEO Home Loans.
“I think we were up right around 15% increase in the number of initial mortgage applications. That doesn’t take into consideration the number of buyers that had already applied and were sitting on the sidelines. They’ve also re-entered the home-buying process,” Mettle told HousingWire.
Many homebuyers are aware of the lack of inventory of existing homes for sale, he explained. Because of that, they want to avoid any potential bidding wars by getting back into the market earlier rather than waiting for mortgage rates to drop further.
Following the Federal Reserve’s decision to hold interest rates steady, the 10-year Treasury yield – the primary driver in the rise of longer-term interest rates – have been on the downswing. The 30-year, conventional fixed mortgage rate hit 7.48% on Friday, down from 7.55% a month ago, HousingWire’s Mortgage Rates Center showed.
The biggest question in the minds of loan originators is whether mortgage rates will fall through the end of 2023, providing some reprieve from the high-rate environment that has stifled origination volume for much of the year.
What’s going on with mortgage rates?
Economists pointed out that the market interpreted Federal ReserveChair Jerome Powell’s comments at the latest Federal Open Market Committee (FOMC) press conference as dovish compared to his previous remarks.
“The way I interpret what has happened, post-press conference for Powell, is that the market is going back to their behavior from earlier this year, where they kept signaling to the Fed that we want rate cuts,” Fannie Mae Chief Economist Doug Duncan told HousingWire. “So the fact that the Fed didn’t raise rates, the market rushed to say, ‘well, rates are going to get cut.’ The decline in the 10-year Treasury yield is simply that response,”
Duncan added that Powell’s comments were balanced, indicating that there has been progress in bringing inflation down but upside risk to inflation remained. Most importantly, Powell emphasized that the committee is not thinking about rate cuts.
“It will not surprise me at all if there’s some intervening speeches that push rates back up on the 10-year Treasury yield,” Duncan said.
Speaking on Nov. 9 – a little more than a week after the Fed held benchmark rates steady – Powell said that the central bank is not confident it has done enough to bring inflation down.
“My colleagues and I are gratified by this progress but expect that the process of getting inflation sustainably down to 2% has a long way to go,” Powell said on Thursday, addressing the International Monetary Fund audience in Washington, D.C.
The 10-year Treasury yield rose after the speech, largely driven by a bad bond auction, but the bond market fell from the peak of Thursday, noted Logan Mohtashami, HousingWire’s lead analyst.
“The bad bond auction on Thursday took yields and rates higher, and Powell’s hawkish tone kept rates up there, but yields on Friday morning fell just a little,” Mohtashami said. “It’ll be interesting to see what the (market) reaction will be to the next (CPI) report.”
Where are mortgage rates headed?
The direction of the 10-year Treasury yield and mortgage rates will depend on the incoming data – including the Consumer Price Index (CPI) and retail sales numbers, economists emphasized.
Danielle Hale, chief economist at Realtor.com, noted that the economy is in the monetary cycle where mortgage rate changes are based on “expectations which can shift in outsized fashion relative to changes in the actual data.”
The CPI report for October 2023 – set to release on Nov. 14 – could push mortgage rates up if CPI numbers come in higher than expected, Hale projected.
Headline inflation is broadly expected to be subdued month over month, partly due to oil prices easing from their late-September highs.
The streak of declining mortgage rates may continue into December if the next few inflation readings come in as expected, Hale projected.
Although Q3 economic growth came in “quite strong” at an annualized 9.4% rate and several job market indicators continue to show strength, as long inflation cools, the central bank is likely to pause at this level for some time, said Michael Fratantoni, MBA’s chief economist.
Fannie Mae and the MBA both expect the Fed to hold rates steady in its last 2023 FOMC meeting scheduled Dec. 12-13.
Is this enough to prop up mortgage origination?
With mortgage rates falling, homebuyers are starting to realize that this may be a great time for them to get into the market while there’s lower demand, said John Crivea II, certified mortgage advisor and loan originator at Mpire Financial Group.
Crivea II saw more than a triple increase in the number of leads in the past week and sees more activity on the horizon.
“If the rates drop more and more people get more excited and come back into the market, now you’re going to be back to where we were two years ago with multiple offers in the five to 10 range,” Crivea II said.
The welcome relief in mortgage rates, however, won’t help lenders a whole lot, economists expected.
“The change of 25 basis points (bps) or a quarter of a percent, puts a very few households in the game versus out of the game. So it’s not a game-changer. If rates fell below 6%, then you’d see a pick-up in production volume,” Duncan said.
Refinance applications tend to pick up when mortgage rates drop, Hale noted. But for the industry to see a mini refi boom, mortgage rates would need to fall below 7%.
“Mortgage rates have only exceeded 7% since August, and, given the sluggishness in home sales in recent months, there aren’t many homeowners who would need to refinance by a smaller dip,” Hale said.
The spread between mortgage rates and Treasury yields remains roughly 120 basis points wider than typical, due to a combination of factors, Fratantoni noted.
MBA’s baseline forecast is for mortgage rates to end 2023 at 7.2%, reach 6.1% at the end of 2024 and drop to 5.5% by 2025. Fannie Mae expects the average 30-year, fixed-rate mortgage to land at 6.8% in 2023 and move up to 6.9% in 2024.
Loan originators emphasized any decline in rates improves affordability while the lack of housing inventory and higher home prices will continue to be a challenge.
LOs are hopeful that the end of 2023 will be different from the same period last year when their origination business was paralyzed, largely due to mortgage rates sharply surpassing the 7% mark.
“We saw extreme pain last year at this time because a 7% mortgage was just absolutely shocking at that point after 3% rates. Nobody had gotten acclimated to that higher interest rate environment because it happened so fast,” Neo’s Mettle said.
“The fourth quarter and the first quarter are always the most challenging for the mortgage industry. People believe that rates peaked just above 8%. I think it’s going to be a much more favorable year for those reasons.”
Federal ReserveChair Jerome Powell left the door open to a future interest rate hike on Wednesday, but most housing professionals are hopeful that the Fed may be done hiking interest rates for 2023.
Tight financial and credit conditions, slowing inflation and high 10-year Treasury yields – the primary driver in the rise of longer-term interest rates – will likely discourage the central bank from a further rate hike this year, economists and mortgage professionals said.
In turn, this will provide relief and bring down stubbornly-high mortgage rates.
“I think the one thing I take away from today is that financial and credit conditions are tighter now, which was different than before,” said Logan Mohtashami, lead analyst for HousingWire. “Unless the 10-year Treasury yield falls considerably, the stock market rallies and home sales start to take off again, December should be off the mark.”
The 10-year Treasury yield, which acts as a benchmark for mortgage rates, fell to a two-week low at 4.766% on Wednesday after the Fed held interest rates steady in a range of 5.25%-5.5%.
Fed officials forecasted one more rate hike in 2023 in its September dot-plot estimates, which shows the range of forecasts for where interest rates could end up. The majority of Fed officials had expected interest rates to finish the year at around 5.6%.
Marty Green, principal of Polunsky Beitel Green, described the Federal Reserve as a “blackjack player with two face cards.”
“The only sensible play at this meeting was to hold pat,” Green said. “It is becoming increasingly clear that the Fed is indeed done raising rates in this cycle. While the cycle has been inordinately painful to the mortgage industry, with another interest rate pause, we should be at least one step closer to some relief in 2024.”
Inflation has fallen significantly since hitting a four-decade high last summer, but consumer prices have increased by 3.7% in September year-over-year, still climbing faster than the Fed’s target of 2%.
The economy is starting to slow down and inflation will moderate at a pace that suits the Fed, said Melissa Cohn, regional vice president of William Raveis Mortgage.
“We’re coming up against Nov. 17, when the government funding ends,” Cohn said.
Coupled with the Israel-Hamas war, the central bank could keep the Fed’s pause on another interest rate hike for a third consecutive month after its next meeting on Dec. 12-13.
“Even though Q3 economic growth came in quite strong, and several job market indicators continue to show strength, so long as inflation continues to come down, the Fed is likely to pause at this level for some time,” Mortgage Bankers Association‘s SVP and chief economist Mike Fratantoni said.
Fratantoni went a step further in anticipating the Fed to cut interest rates in the second quarter of 2024.
“If the Fed does indeed move to cut rates next year and signals its intent to do so, mortgage rates should trend downward. Our forecast calls for this to happen, which would support a somewhat stronger spring housing market,” Fratantoni said.
Powell, however, made clear on Wednesday that the committee is “not thinking of rate cuts” and is intent on bringing inflation down to 2%.
The best-case scenario is for the Fed to keep rates steady in December, said Raunaq Singh, founder and CEO of Roam, a platform for affordable homeownership.
Depending on November’s inflation readings, a slight rate hike in December is also likely, he noted.
“This will exacerbate the housing affordability crisis, which has already reached an all-time low,” Singh said. “Median monthly mortgage payments are at an all-time high. More than 50% of mortgages have monthly payments north of $2,000, whereas two years ago that number was more like 18%.”
While the odds of an additional rate hike is low, the Fed is expected to keep the option on the table, Danielle Hale, chief economist for Realtor.com, raised a cautious view.
“As long as a rate hike is on the table, investors are likely to position cautiously, and the tendency for rates to remain steady to slightly higher remains,” Hale said.
Improvement in data should reflect lukewarm readings on the economy and lower inflation, which will be more important drivers of lower rates, she explained.
At the final FOMC meeting in December, two months of inflation and labor market numbers will be reviewed to determine the direction of future interest rates.