Will Mortgage Rates Finally Go Down in 2024?
As the Federal Reserve monitors slowing inflation and holds interest rates steady, many experts predict that mortgage rates will go down in 2024. While the high interest rates of the past year kept prospective buyers out of the market, lower rates in 2024 could bring them back.
Before you buy a new home and call a moving company, let’s explore what lower mortgage rates could mean for homebuyers. Our team consulted experts in real estate and finance who offered predictions and insights on the 2024 market.
What Do Experts Predict for Mortgage Rates in 2024?
- The Mortgage Bankers Association (MBA) predicts that 30-year interest rates will drop to 6.1% by the end of 2024 and could reach 5.5% by the end of 2025.
- Federally backed home mortgage company Fannie Mae agrees, forecasting 30-year rates of around 6% and an increase in single-family mortgage originations from $1.53 trillion in 2023 to $1.98 trillion in 2024.
- Some experts said that reduced interest rates could result in higher housing prices. Shawn Tysiak, lecturer of finance at the University of Toledo’s Neff College of Business and Innovation, thought that home prices could rise as competition increases and lower rates allow buyers to afford higher monthly mortgage payments.
- In October 2023, 30-year mortgage rates peaked at 8.45%.
What Affects Mortgage Rates?
The Federal Reserve is the central bank of the U.S., so it works to minimize unemployment and keep the financial system stable. Inflation, which is the general increase in prices and decrease in the purchasing value of money, ideally rises no more than 2% per year.
When inflation rises too fast, as it has recently, the Fed increases interest rates. This is meant to promote less spending and decrease demand as people and businesses take out fewer loans. A higher interest rate should slow the economy while a lower interest rate encourages greater spending.
The Fed doesn’t set mortgage rates but controls the federal funds rate, an interest rate that banks pay for short-term loans. When the Fed changes the rate paid to banks on reserve balances, financial institutions adjust other interest rates such as for mortgages.
Inflation has slowed considerably from a high of 9.1% in June 2022 to 3.1% in January 2024. In addition to the Fed’s policy, other factors could be responsible for this decrease. Recessions in other countries, global conflicts, and presidential elections all contribute to economic uncertainty. While the Fed hasn’t significantly lowered interest rates yet, experts believe that rates are likely to fall in the next few months.
Note that the lowest posted mortgage interest rate isn’t available to everyone. Mortgage rates for individuals depend on factors such as their credit score and the percent down payment they can offer. Rates will likely vary by financial institution, so we recommend comparing them across banks, credit unions, and mortgage brokers.
- “Housing finance is generally quite competitive but not as crazy as it was a while back.” —Robert Van Order, Oliver Carr chair of real estate at George Washington University
What Does This Mean for Prospective Buyers?
Is now the right time to buy or sell a home? Prospective buyers should ask whether they need to get out of an existing mortgage, how long they plan to stay in the new house, and if they’re willing to wait for rates to decrease further.
Selling a Home
Homeowners who bought in the last decade likely benefited from lower mortgage rates, making them hesitant to sell their houses. However, lower rates could make selling more tempting in 2024.
“Lots of people had mortgages at around 3% when rates went up to 7%,” Van Order said. “They were locked into their current house because they would have to give up their low-rate mortgage if they sold their house. This cut into houses available for sale, which kept prices up.” Van Order predicted that this trend could reverse itself depending on how far rates drop.
Other experts predicted that greater availability of inventory could lead to higher prices. Tysiak thought that lower interest rates would lead consumers to pay higher monthly payments and get approved for higher loans.
“With interest rates falling, homes that are higher in price should see additional competition because more buyers are now able to afford the home,” Tysiak said. “If you’re a buyer, expect to pay a higher price.”
Because people tend to buy at the top of their budgets, Tysiak expected home prices to rise. Lower interest rates may encourage sellers who were on the fence about moving to jump at the opportunity to cash in on their houses and take on new mortgages elsewhere. “A seller is more likely to sell when they can get a higher price for their house,” Tysiak said.
Buying a Home
Our 2024 Aspiring Homeowners Report indicates that buyers are eager to enter the market. Nearly one-third (30%) of potential homebuyers we surveyed would settle for a mortgage rate higher than 6% if it meant being able to pursue homeownership. So, what do prospective homebuyers need to know about 2024 mortgage rates and how they’ll affect the housing market?
With more sellers putting homes on the market, inventory may rise. This means that prospective buyers will be competing for inventory with sellers looking for new homes. While builders could be encouraged to create new supply, prices will likely go up as sellers previously locked into low mortgage rates get more willing to buy new houses.
Van Order, who predicted a competitive housing market in 2024, said the stagnation caused by sellers locked into low mortgage rates “has made the market less competitive by limiting supply, but that should diminish as rates fall and supply increases.” Van Order also said that the housing market should expand as “low borrowing costs make financing a house less costly, which steps up homebuying and production.” In other words, institutional builders may take advantage of cheaper credit and produce more housing.
Sandy Bond, professor of practice in real estate at Bucknell University, believed that interest rate drops in 2024 wouldn’t be sufficient to cause major movement in the real estate market.
“Typically, a rate drop would entice buyers into the market, but it would need to drop significantly (more than the predicted Fed adjustments of 0.25 basis points) to have any noticeable impact,” Bond said.
Bond predicted that falling inflation levels and improved consumer purchasing power wouldn’t cause a real estate gold rush. “I believe the housing market will stay relatively stable for 2024,” she said. Bond explained that homeowners locked into 30-year mortgages at low-interest rates are “unlikely to want to give up such favorable terms by purchasing a new home.”
- “With interest rates dropping, choosing an adjustable-rate mortgage makes sense, rather than locking into still relatively high mortgage interest rates in a fixed-rate mortgage.” —Sandy Bond, professor of practice in real estate at Bucknell University
Is Now a Good Time To Refinance a House?
Slightly lower rates probably won’t encourage buyers with competitive mortgage rates to refinance. However, for buyers who bought at peak interest rates, refinancing at a lower rate could result in a reduced monthly payment and a lower amount paid in interest over time.
Other reasons for homeowners to refinance include freeing up equity for a major purchase or for remodeling an existing home. Refinancing could appeal to those who need more space but don’t want to move into a completely new house.
The Mortgage Bankers Association is seeing indicators that rates below 7% are resulting in an increase in home loan refinancing applications. Common wisdom says that refinancing may be worth it if you can lower your interest rate by at least 1%. If you’re considering refinancing, look out for hidden costs. Refinancing isn’t free, and closing costs, along with other fees, could significantly cut into your savings.
Refinancing from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) with much lower interest may offer immediate benefits but could lead to higher payments if rates go back up.
Tips for Buying a House
Make sure to carefully prepare before buying a home. Below are a few steps that buyers can take to get ready for a home purchase:
- Get preapproved for a mortgage loan. “Getting preapproved for a loan helps in a competitive lending market,” Bond said. Start shopping for a lender before you’ve found your dream home since a preapproval letter is usually required when making an offer.
- Check your credit rating at the three main credit bureaus: Experian, Equifax, and TransUnion. If your credit score is below 600, it could affect the interest rate a lender is willing to give you. To improve credit, pay all outstanding bills and contact the lender if you’ve fallen behind on credit card payments. Use only 30% of your available credit if possible and keep older lines of credit open to demonstrate a longer credit history.
- Assess your financial situation before committing to a mortgage. Consider whether your budget can sustain the monthly costs of owning a home. “Homeownership comes with mortgage payments, property taxes, homeowners insurance, maintenance, and repairs,” Tysiak said. “Developing a budget is essential in determining how much the buyer can actually afford.”
- Don’t rule out an adjustable-rate mortgage (ARM) instead of a fixed-rate mortgage. Although these mortgages start with a teaser rate that could increase during the life of a loan, they could be a decent option for certain homebuyers.
- To lower your interest rate, make the maximum possible down payment. “Putting down 20% of the purchase price will allow the buyer to avoid private mortgage insurance (PMI), which could be several hundred more dollars per month,” Tysiak said.
- Consider a down payment program. Down payment assistance programs help buyers get money for either a down payment or closing costs. These loans or grants are often provided through government- or community-sponsored programs but can also be received from mortgage companies. Our aspiring homeowners report found that 76% of respondents plan to use a down payment program when they purchase their first home.
Our Conclusion
While it’s unclear how much interest rates will go down in 2024, any meaningful decrease could stimulate extra movement in the housing market. Whether you’re a first-time homebuyer or a seller waiting for the right moment to list your house, being aware of 2024 interest rate trends can give you an educated decision about when to move.
Our Experts
- Shawn Tysiak is a senior lecturer of finance at the John B. and Lillian E. Neff College of Business and Innovation at the University of Toledo. Tysiak is an alumnus and lecturer at the University of Toledo who received an MBA there in 2000. He got into the real estate market upon graduation and currently owns and operates a property investment company in Toledo, Ohio.
- Robert Van Order is the Oliver Carr chair in real estate and a professor of finance and economics at George Washington University. Van Order was chief economist at Freddie Mac from 1987 to 2002, and before that worked as a director at the U.S. Department of Housing and Urban Development. His current research interests are in housing and mortgage markets along with credit risk and capital markets.
- Sandy Bond is a professor of practice in real estate at Bucknell University in Lewisburg, Pennsylvania. Bond’s current research interests include sustainable real estate and the impact of detrimental conditions on property values.
