Will Mortgage Rates Drop in 2024? Housing Market Gets an Update

Americans with home-buying dreams in the near future are keeping a close eye on interest rates, hoping for good news in 2024. The U.S. has reached a peak in interest rates and the cost of borrowing for a home could fall next year and encourage more sales of houses currently stifled by elevated mortgage rates and low inventory, Lawrence Yun, National Association of Realtors chief economist said. The housing market has struggled under the weight of high mortgage rates that have hovered around 8 percent, the highest such level in two decades. Low supply of homes has also priced out buyers as they struggle to afford the expensive costs of paying for a home. Mortgage rates have climbed partly due to the Federal Reserve hiking of rates to battle soaring inflation to their current level of 5.25 to 5.5 percent, itself a more than 20-year high. That has pushed up borrowing costs, including for homes. Yun suggested that, after the Fed paused rates in their last two meetings, that the sector may have reached its peak in terms of rates. "The question is when are rates going to come down," he said. Yun anticipated mortgage rates in 2024 could fall to between 6 or 7 percent by the spring.

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Experts tell Newsweek recent economic data showed that the job market was slowing and inflation was cooling which could signal to the Fed that it was making progress on bringing the rise in prices down to its target of 2 percent and thereby pause its moves of hiking rates. Such a posture could help mortgage rates lower over the next year. "There are several possible scenarios, one of which is definitely that rates could come down substantially next year," Chen Zhao, Redfin's head of economic research, told Newsweek. "I think markets are still expecting rates to be pretty elevated next year, although markets do expect the Fed to start cutting next year, so that could lead to lower mortgage rates than what we currently have." Recent data suggests that mortgage rates have come down slightly, encouraging more buyers. On Wednesday, the Mortgage Bankers Association (MBA) said that for the week ending November 10, mortgage applications jumped by 2.8 percent from a week earlier. "The 30-year fixed mortgage rate remained at 7.61 percent, about 30 basis points lower than three weeks ago," Joel Kan, MBA's deputy chief economist, said in a statement.

Not going back to pandemic-era mortgage rates

Hannah Jones, realtor.com's economic research analyst, struck a note of caution saying that even if the Fed holds rates for the foreseeable future, mortgage rates are unlikely to go back to their 2.5 to 3 percent levels during the pandemic. "The expectation is not that mortgage rates are going to fall super significantly," she told Newsweek. "I think that our our expectations align with that as well that while mortgage rates may come down, we're not going to see, pandemic era rates next year." Should mortgage rates fall, it could spur activity in the market by both buyers and sellers, experts say, compared to the current dynamic in the sector where increasingly wealthy purchasers are the only ones able to afford to pay down payments which are at the highest since before the pandemic, according to realtor.com data. "With low inventory, we see that people are competing," Jones said. "Buyers in the market are able to make larger down payments because buyers who aren't able to afford that are probably not in the market." Decline in rates could encourage sellers to enter the market, according to NAR's Yun. "Pent-up sellers cannot wait any longer. People will begin to say, 'life goes on,'" said Yun. "Listings will steadily show up, and new home sales will continue to do well. Existing home sales will rise by 15 percent next year." Zhao said inventory will be key when it comes to the question of whether an increase in home sales will accompany a potential drop in rates. "If we're able to see inventory increase a little bit, that should help support higher home sales," she told Newsweek. "What we've seen in our data recently is that inventory is starting to tick up just a little bit, but it hasn't been a big change just yet." There is still a lot of uncertainty in the economy and what policymakers will do with rates, which could still shape the fate of the housing market next year. While economic data may give confidence to the idea that the Fed may be done with rates, and may even begin cutting rates, there was still a question of what they will do with government debt, Zhao said. "There are long-term concerns from investors about how much debt the government has and there's also a lot less interest to buy that debt," Zhao said. Because of that, that causes the rates to go up so it's possible that even if the Fed is cutting mortgage rates won't be able to go down very much." How the Fed decides to unwind trillions of dollars of government debt it owns, could also play a role in what happens with mortgage rates, said Matt Pestronk, president and co-founder of Philadelphia-based real estate firm Post Brothers. "The Fed is a total wild card," he told Newsweek. Investors have seemingly indicated that they look at a lot more than just how inflation is shaping monetary policy, Zhao said. "A year ago the story around mortgage rates was all about inflation. That's all we were talking about. Like, if inflation is up and you know mortgage rates need to go up but if inflation is down, mortgage rates come back down," Zhao told Newsweek. "But in the last couple of months, it's become very clear that investors are worried about more than just inflation, they're also worried about the fiscal sustainability of the country."