When Will Interest Rates Go Down? 2024 Prediction

The decision to increase mortgage rates in March of 2022 led to a somewhat turbulent 2023. While the average 30-year rate surpassed 7% in October of 2022, it came back to the 6% range during the first two quarters of 2023. However, by July of 2023, the rates started climbing again and breached 8% in late October for the first time in decades.

It’s clear that the ongoing battle against inflation isn’t ending anytime soon. The Federal Reserve has increased interest a total of 11 times since the first time in March of 2022. The good news is that inflation appears to be leveling out, so there are unlikely to be any more increases. In fact, according to recent reports, we may even see some rate cuts in 2024.

Let’s look into some of the mortgage rate predictions for 2024 and see if rates are expected to come back down.

Key Takeaways and Trends

The economy has slowly but steadily improved since the devastating effects of the COVID-19 pandemic, at which point the Fed cut the federal funds rate dramatically. However, these improvements have yet to make significant improvements on housing affordability. The general consensus for mortgage rate predictions is that they’ll stay above 6% for 2024. It’s more a question of whether they’ll be on the higher side or lower side.

Current Mortgage Rates

In October we saw rates at the highest Americans have seen since the Summer of 2000, with the average interest rate for a 30-year fixed rate mortgage reaching 8.26%. As of this writing, rates have since fallen to 7.22%. While there is lingering optimism that these lowered rates may persist, the present average 30-year fixed rate is still a significant consideration for many Americans navigating the home purchasing landscape.

How Did Mortgage Rates Trend in 2023?

The year 2023 saw the continued upward trend for mortgage rates that began in the first quarter of 2022. Mortgage rates during the initial weeks of 2023 hovered around 6.48%. However, they steadily increased throughout the year, reaching a new high of 7.31% in September. The high would be broken multiple times after this as the rate climbed to 7.49% in early October and 8.26% by Halloween. Fortunately by early November, rates fell below 8% and as we reach the year-end they are arriving closer to the low 7s.

Expert Mortgage Rate Predictions for 2024

The sudden increase in mortgage rates throughout 2023 has justifiably concerned many potential homeowners. With worries about further increases ahead, many people are wondering whether it’s wise to buy now, especially as rates have recently experienced a modest decline. Here is what the major players inside the mortgage rate industry have to say about what’s most likely to transpire in 2024.

Fannie Mae: 6.875%

Fannie Mae, according to its recent Housing Forecast, has predicted that the average 30-year fixed-rate mortgage rates will slowly decline from 7.0% in the first quarter to 6.8% by the end of 2024 for an average rate of 6.875%.

With the unexpected jump in mortgage rates to above 8 percent, the housing market is still facing tough challenges. Fannie Mae reports that mortgage origination activity has slowed in the final quarter of 2024, with total home sales reaching the lowest point since 2011. They also note that the new home market, which shone during the first half of 2023, is likely to cool off, and total home sales in 2024 will likely continue at a slower pace than we’ve seen in over a decade.

Mortgage Bankers Association: 6.525%

The Mortgage Banker Association has a brighter outlook for the future and expects that as inflation slows, longer-term mortgage rates will start to come down. Their mortgage rate forecast expects rates to steadily decline over the year and reach 6.1% by the end of 2024 for an annual average of 6.525%. These optimistic interest rate forecasts also predict that mortgage origination should increase by 19% as they anticipate the Federal Reserve’s hikes are nearing an end.

National Association of Realtors: 6.3%

The National Association of Realtors believes that the 30-year fixed mortgage rate will decrease to an average of 6.3% in 2024. They also predict that both the sale of existing homes and the construction of new homes are respectively likely to increase by 13.5% and 6.5%. If these predictions hold, it could signal a massive turnaround for the economy and help to further lower interest rates in the years to come.

Realtor.com: 6.4%

Realtor.com believes that the worst is over and that interest rates will steadily decline from their current levels, average roughly 6.4% over the year, and eventually reach 6.1% by the end of 2024. These predictions come from a strong belief that the Federal Reserve is done with the interest rate hikes that have led to ballooning mortgage rates in the past two years. Their expectations are for the rates to stay a little high for the next few months but for a turnaround to start at the end of the spring of 2024.

Are Mortgage Rates Expected To Fall in 2024?

The general expectation amongst industry experts is that interest rates will fall in 2024, but they are unlikely to drop below 6%. The majority of these expectations will likely prove correct due to the fact that rates were recently the highest they’ve been in nearly 23 years.

The most likely outcome is that mortgage rates will gradually decline over the next year and reach their lowest rates by the third or fourth quarter. This time is typically when home buying slows down, and rates take a noticeable dip. The majority of forecasts predict the first quarter of 2024 to feature rates somewhere in the 7% range, but they should quickly fall into the 6% range.

The thought process behind these predictions is that the Fed rate is unlikely to increase again. It appears that the Federal Reserve is a few months away from deciding that inflation has improved enough to start lowering rates. With many economists projecting more than one rate decrease in 2024.

Earlier forecasts predicted that the Fed would lower rates much sooner. While the Fed hasn’t raised interest rates in several months and is unlikely to again in the near future, it has been adamant that it will keep elevated rates and maintain a similar monetary policy until inflation is more firmly under control.

When Will Mortgage Rates Drop in 2024?

Given the above information, we can make some reasonable predictions about the activity of average mortgage rates across the country.

Short Term Predictions for Q1 and Q2

For the first half of 2024, interest rates are expected to hover just above 7%. However, interest rates are expected to gradually decline over the course of the year. They could reach the higher end of the 6% range by the summer of 2024. That will largely depend on the buyer activity during some of the busiest real estate months of the year.

Most of the time, people are looking to buy houses in the late spring and summer. The weather is often much more agreeable during these times, and it is easier for families with children to move without worrying about school. If there is a lot of buyer activity during these times, interest rates could see an uptick. However, if buyers are hesitant and looking to avoid high interest rates, it could slow down projections for home sales.

This year, the often-busy spring buying season did not take off as expected due to limited new inventory and priced-out buyers. As such, interest rates and the availability of affordable homes will dictate buyer activity.

Long-Term Predictions for Q3 and Q4

It’s important to note that declining interest rates won’t necessarily make owning a home more affordable to the average American.

Even if the interest rates drop below 7% in the second half of 2024, that’s likely not going to be enough for first-time buyers to afford a starter home. Wage increases haven’t kept up with the booming costs of mortgages, and many people are expected to remain renters instead of homeowners. As a result, this opens the door to foreign investors and corporations looking to turn single-family homes into rental properties.

Homeownership rates have steadily decreased for young adults over the years, and the combination of these factors is unlikely to reverse this trend. Interest rates would need to come down to pre-pandemic lows, and wages would need to improve drastically for many young adults to enter the housing market.

As of 2022, only 62% of Millennials were homeowners, as compared to 69% of Baby Boomers when they were in the same age range. As of 2023, their homeownership rate is lower than the national average of 66% for all age groups.

However, there is some good news on the horizon as more homes are expected to be built in 2024. There has been an increased demand for housing in recent years as Millennials started entering the optimal age for homeownership. Unfortunately, the COVID-19 pandemic dramatically reduced the supply of these new homes and created a bottleneck.

Since health concerns have largely returned to normal, so too has the construction of new homes. If this trend continues, home prices and mortgage rates may start to stabilize and make it easier to purchase a home.

What Happens if the U.S. Hits a Debt Ceiling?

Because mortgage rates generally track the broader economy, if the U.S. hits a debt ceiling, it could have negative impacts across the board. Without getting too complicated, if worldwide trust in the U.S. debt system fails, demand for U.S. treasury bonds could decrease. That, in turn, could lead to higher interest rates and higher mortgage rates for anyone, individuals and organizations alike, looking to borrow money for property.

The United States came dangerously close to experiencing its first-ever default in June. The $31.4 trillion debt ceiling was set to be surpassed, which could have triggered widespread economic consequences. Fortunately, the Senate voted 63-36 to approve a bill that suspends the debt ceiling until January 2025. The legislation means that it's impossible for the U.S. to hit the debt ceiling in 2024, but it does raise concerns about potential overspending.

Four Factors That Influence Mortgage Rates

Mortgage rates — usually referring to the average interest rates for 30-year fixed-rate mortgages (the most common mortgage loans for American homeowners) — are affected by many important factors.

1. Economic Indicators

If the economy does well, generally, the U.S. mortgage interest rates increase: Buyers have more spending power, and there’s usually more demand for homes. This allows home sellers and real estate organizations to increase interest rates and make more of a profit. The reverse is true if the economy does poorly or enters a slump.

One of the main reasons that mortgage rates skyrocketed in the first place was due to economic uncertainties regarding the COVID-19 pandemic. With each passing year, life is slowly returning to normal from an economic perspective. The further we get away from the events of 2020, the sooner we can expect that mortgage rates go down.

2. Inflation Expectations

Inflation also has an outsized impact on mortgage rates. When inflation skyrockets, mortgage rates rise because treasury yields become less valuable.

Investors want higher rates to compensate for the reduced purchasing power of the currency. Since the high inflation has been decreasing in recent months, this could be a sign that mortgage rates should also decrease.

However, mortgage rate reductions don’t typically happen overnight. As inflation decreases, the positive impact on mortgage rates will likely lag by several months at least. The Fed does not want to lower interest rates too soon and accidentally encourage inflation to spike again.

3. Central Bank Policies

Naturally, the Fed or Federal Reserve and its policies impact mortgage rates across the country. That’s because big mortgagors and lenders get their money from the Fed via treasury bonds and other instruments.

The Fed still has two opportunities left in 2023 to increase the rates as they have in the past. Expectations are that a November hike is unlikely, but several experts predict the December meeting will yield an increase of 0.25 percentage points. If that happens, it will likely slow down the borrowing rate and affect interest rates.

How Do Mortgage Rates Impact the Housing Market?

Mortgage rates impact the broader housing market in two key ways.

Home Affordability

When interest rates are higher, fewer Americans can afford homes. After all, being able to afford a down payment is just the start of buying a house. Prospective homeowners also need to know they’ll be able to make regular monthly payments for 30 years or so. Higher interest rates mean higher monthly mortgage payments and reduced buyer interest.

For example, if you’re looking at a $250,000 mortgage with a 3% APR (typical for pre-pandemic times) for 30 years, the monthly payment would be roughly $1,054.01. By the end of the home loan, you’d have paid $129,443.63 in interest. However, that same loan with a 7% APR (lower than the current average) would require $1,663.26 per month, and the total interest would balloon to $348,772.25.

These differences can make the prospect of buying a house impractical and virtually impossible for many Americans. Instead, the best course of action is to wait and hope for the rates to drop down.

Willingness To Sell

Interest rates also affect homeowners’ willingness to sell. When mortgage rates are high, home sellers may not want to sell since they’ll have to purchase a property with high interest rates. In the long run, they could end up losing money from their home sales.

The reverse may make homeowners more willing to sell. Low interest rates give current homeowners the opportunity to sell properties they no longer want and purchase better properties for excellent prices and low fixed interest rates for 30 years or more.

It’s important to remember that the increased interest rates don’t go to the owners of the home, nor does it automatically represent an increase in their home equity. The overall value of the home stays the same; it’s just that the interest rate for borrowing the principal is much higher. They receive the same amount of money for the sale of the home as they would have previously, except now they’ll have to experience elevated interest rates for the purchase of their new home and potentially lose money in the process.

How Can You Find Competitive Mortgage Rates?

Given the importance of mortgage rates for 2024 and beyond, you need to know how you can find competitive ones if you’re looking to buy a home, whether it’s your first home or not.

Local Market Mortgage Experts

Fortunately, Vaster can help you through the process from start to finish. We offer a comprehensive, supportive, one-stop shop mortgage experience, enabling borrowers like you to find the best mortgage options based on your budget, credit score, and other factors.

More importantly, you’ll be paired with a knowledgeable loan officer to provide you with expert guidance one on one. When you work with Vaster, you’ll get the peace of mind and financial know-how you need to guarantee a good purchase and loan.

Final Thoughts

Ultimately, these predictions are never set in stone, and different economic activities or geopolitical developments could impact how mortgage rates fluctuate throughout 2024. It's also important to note that rates can vary from borrower to borrower and from loan product to loan product. Still, you can use these predictions as guides or reference points as you work with your realtor and mortgage lender to prepare for homeownership.

Want more insights and expert guidance? Reach out to Vaster and get started on your mortgage application with the personal finance experts who help work with you to find the right policy, including a potential mortgage refinance, that fits your needs.

Vaster is an equal opportunity lender. The rates and terms mentioned in this article are not a commitment to lend. NMLS 180495.

Sources:

Mortgage Rates, Mon, Oct 30 | Mixed | NerdWallet

Compare Current Mortgage Rates | Forbes Advisor

Housing Forecast - October 2023 | Fannie Mae

Economic, Housing and Mortgage Market Outlook – October 2023 | Freddie Mac

MBA Forecast: Mortgage Originations to Increase 19% to $1.95 Trillion in 2024 | MBA

Home Sales Inch Up, But Remain Historically Low | NAR

Mortgage Bankers Expect the 30-Year Rate To Drop to 6.1% by the End of 2024 | Realtor.com

Fed Projects Rates Will Be Higher For Longer, Upping Chance of Elevated Mortgage Rates Into Next Year | Redfin

Us Congress Averts Historic Default, Approves Debt-Limit Suspension | Reuters