How low will mortgage rates go in 2024?
In its January Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.9% in the first quarter of 2024 to 6.1% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the first quarter of 2025.
Mortgage rates could continue to trend downward this year, especially once the Fed starts cutting the federal funds rate. "Mortgage rates will go down in 2024. How much and when depends on the economy and inflation.
In summary, it is unlikely that mortgage rates in the US will ever reach 3% again, at least not in the foreseeable future.
“While we still expect mortgage rates to decline, they are unlikely to fall below 6% before end-2025, muting any recovery in house purchase demand and sales volumes.”
The predictions made by the various analysts and banks provide insight into what the financial markets anticipate for interest rates over the next few years. Based on recent data, Trading Economics predicts a rise to 5% in 2023 before falling back down to 4.25% in 2024 and 3.25% in 2025.
“Assuming no significant economic shocks, mortgage rates are likely to continue slowly easing over the next few months, to reach a 6% to 6.5% range by spring of 2024.” Mortgage Bankers Association (MBA).
The ESR Group expects mortgage rates to decline in 2024, ending the year below 6 percent. The lower rate environment is expected to boost refinance volumes, which are already on the upswing, as evidenced by the recent uptick in Fannie Mae's Refinance Application-Level Index, to nearly double their 2023 levels in 2024.
The good news is that inflation is cooling, and many experts expect interest rates to move in a downward direction in 2024. Then again, a two-point drop would be significant, and even if rates fall, they're not likely to get down to 5% within the next year.
Many forecasters expect rates to remain well under 7 percent this year. McBride expects them to drop all the way to 5.75 percent by the end of 2024. “Inflation has been coming down — and coming down faster than expected in recent months — which bodes well for mortgage rates,” says McBride.
Higher interest rates typically have two effects on the housing market that can help drive down prices: They price some buyers out of the market, which is good for the buyers who remain, and they typically have the effect of putting downward pressure on housing prices, which is good for buyers.
Where will mortgage rates be in 2026?
The 10-year treasury constant maturity rate in the U.S. is forecast to decline by 0.8 percent by 2026, while the 30-year fixed mortgage rate is expected to fall by 1.6 percent. From seven percent in the third quarter of 2023, the average 30-year mortgage rate is projected to reach 5.4 percent in 2026.
They predict interest rates will stay at their peak for a while longer, before they begin to be cut. They then predict the base rate will gradually be cut to around 3 per cent in 2025.
Mortgage rates are going to stay above 6% through 2025, according to estimates from Goldman Sachs. Goldman said the decline in mortgage rates should offer marginal improvements in housing affordability. The average 30-year mortgage rate fell to 6.62% last week after hitting a cycle-high of 7.8%.
The Federal Open Market Committee (FOMC) announced on January 31, 2024, that it would maintain its policy rate in a range of 5.25% to 5.5%. The January decision marks the fourth straight meeting at which the Federal Reserve (Fed) has opted to hold interest rates steady.
Changes to Interest Rate Projections
In CBO's last full set of economic projections, which were released in February, the organization estimated that interest rates on the federal funds rate would rise to a fourth-quarter average of 4.8 percent in 2023 before falling to 2.6 percent by mid-2025.
According to their predictions based on recent data, Trading Economics anticipates the interest rate to descend to 4.25% in 2024 and 3.25% in 2025. Their forecast suggests that the Fed may need to reduce interest rates in response to a slowdown in economic growth and a decline in inflation.
Some simple math suggests the average 30-year mortgage rate will run between 7.3 percent and 5.9 percent in 2024. And that's without doing much thinking about the Fed's next moves, how the economy might fare, or what's next for inflation.
Mortgage rates change all the time. So a good mortgage rate could look drastically different from one day to the next. Right now, good mortgage rates for a 15-year fixed loan generally start in the high-5% range, while good rates for a 30-year mortgage typically start in the mid-6% range.
This practice is sometimes called “buying down the interest rate.” Each point the borrower buys costs 1 percent of the mortgage amount. So, one point on a $300,000 mortgage would cost $3,000. In effect, mortgage points are a type of prepaid interest.
The Federal Reserve's interest rate decisions affect borrowing costs for many types of financial products, including home equity loans and lines of credit (HELOCs). At its meeting on Jan. 31, the Fed decided to maintain its key rate, signaling a potential for interest rate cuts later in 2024 if inflation lessens.
Why are mortgage rates so high?
Why are mortgage rates so high? The recent surge in mortgage rates results from several factors, most significantly the Federal Reserve's policy of increasing short-term interest rates. Hiking interest rates has long been the Fed's primary tool for battling high inflation.
In December, Fed officials indicated that they envisioned three rate cuts in 2024, reducing their benchmark rate to about 4.6% by year's end.
Mortgage rates have dropped substantially over the past couple of months. Average 30-year mortgage rates are currently down more than a full percentage point from when they peaked near 8% in October 2023. Rates have been holding relatively steady in recent weeks, and they're expected to go down further in 2024.
At its 25 January 2024 meeting, the ECB left its main interest rates unchanged, including the deposit rate at 4.00%. The ECB raised rates by 4.5 percentage points from July 2022 to September 2023.
On the basis of these inflation forecasts, average consumer price inflation should be 3.2% in 2024, compared to 4.06% in 2023 and 9.59% in 2022.
