Mortgage rates are expected to decline later this year as the U.S. economy weakens, inflation cools and the Federal Reserve cuts interest rates. But until the Fed sees evidence of slowing economic growth, interest rates will stay higher for longer.
The 30-year fixed mortgage rate is expected to fall to the mid-6% range through the end of 2024, potentially dipping into high-5% territory by the end of 2025.
Here's where mortgage interest rates are headed for the rest of the year and how that will impact the housing market as a whole.
When Will Mortgage Rates Go Down?
Mortgage rates are expected to decline when the Federal Open Market Committee cuts the benchmark interest rate, which is likely to happen in the second half of 2024. But as long as inflation runs hotter than the Fed would like, rates will remain elevated at their current levels.
"Strong incoming economic and inflation data has caused the market to re-evaluate the path of monetary policy, leading to higher mortgage rates," says Sam Khater, Freddie Mac's chief economist, in a Feb. 22 statement.
Most economists agree that rates should pull back gradually to the mid-6% range by year-end. Here's what experts have to say about their predictions for this year.
Fannie Mae: Rates Will Decline to 6.4%
The April Housing Forecast from Fannie Mae puts the average 30-year fixed rate at 6.7% during the first quarter of 2024, falling to 6.4% by year-end. This reflects an upward revision in Fannie's analysis: Two months ago, the mortgage giant expected rates would dip below 6% at the end of this year. All told, Fannie Mae predicts mortgage rates will average 6.6% in 2024 and 6.1% in 2025.
"Financial markets rapidly repriced their interest rate expectations following hotter-than-expected inflation reports and ongoing strong payroll employment gains," says Hamilton Fout, vice president of Fannie Mae's Economic and Strategic Research group, in an April 23 statement. "While we still expect economic growth and inflation to moderate going forward – and, thus, for mortgage rates to drift downward – interest rates existing in a 'higher for longer' state seems to be an increasingly real possibility in the eyes of market participants, as well as some homebuyers and sellers."
MBA: Rates Will Decline to 6.4%
In its April Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.8% in the first quarter of 2024 to 6.4% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the fourth quarter of 2025.
"We made significant changes to our forecast in April as a result of recent data showing surprisingly persistent inflation in the context of a strong job market," MBA economists say of the forecast. "Most notably, we are now looking for a first-rate cut from the Fed in September of 2024, pushed back from our prior forecast of a June cut, and expecting only two rather than three cuts this year."
NAR: Rates Will Decline to 6.5%
The National Association of Realtors expects mortgage rates will average 6.8% in the first quarter of 2024, rising to 7.1% in the second quarter, according to its latest Quarterly U.S. Economic Forecast. The trade association predicts that rates will fall in the second half of the year, reaching 6.5% in the fourth quarter.
"The bottom line for spring homebuyers is that mortgage interest rates may show little dramatic downward movement any time soon," says Jessica Lautz, deputy chief economist and vice president of NAR Research, in an April 25 statement.
Realtor.com: Rates Will Decline to 6.5%
The real estate listing website Realtor.com predicts in a 2024 Housing Market Forecast that rates will average 6.8% this year, dipping to 6.5% by the end of 2024.
"Although mortgage rates are expected to begin to ease, they are expected to exceed 6.5% for the calendar year," the report reads. "This means that the lock-in effect, in which the gap between market mortgage rates and the mortgage rates existing homeowners enjoy on their outstanding mortgage, will remain a factor.
Wells Fargo: Rates Will Decline to 6.5%
In its latest U.S. Economic Outlook, the Economics Group of Wells Fargo Bank puts the 30-year conventional mortgage rate at 7.05% in the second quarter of 2024, declining to 6.5% by the end of the year. Wells Fargo economists predict that the average rate will dip below 6% in the fourth quarter of 2025.
"Although policy easing may arrive a bit later than previously expected, we still believe the FOMC will start cutting rates before the year is out," Wells Fargo researchers say in an April forecast update. "We expect inflation to trend lower throughout the year, but progress will likely be gradual."
Why Mortgage Rates Are Expected to Decline in 2024
Stubbornly high mortgage rates in 2023 were a byproduct of the Fed's battle to tame inflation to its 2% annual target amid positive economic growth, despite the pressures of rising interest rates. The central bank raised the federal funds rate seven times in 2022 and another four times in 2023, with the latest 25-basis-point rate hike coming at its July meeting.
During the Fed's May 2024 rate-setting meeting, policymakers voted again to hold the target range steady at 5.25% to 5.5%, and it appears the central bank has finished its tightening cycle. Fed Chair Jerome Powell said at a May 1 news conference that another rate hike is "unlikely," but that policymakers are "prepared to maintain the current target range for the federal funds rate for as long as appropriate."
The Fed's latest projections materials released in March show that three rate cuts are still expected in 2024, bringing the rate down by three-quarters of a percentage point by the end of the year. However, the Fed's economic policy isn't set in stone. If the economy begins to show signs of heating up, policymakers may adjust their path accordingly.
But given the Fed's projections and recent commentary, multiple rate cuts in 2024 seem more likely than not, just not as soon as previously thought.
At the beginning of the year, many economists believed rate cuts would begin in March – and then they thought May, then June at the earliest. Now, economists at Freddie Mac, the MBA, and Wells Fargo predict that the FOMC will cut rates in September. Another reason mortgage rates are expected to fall is the abnormally large spread between the 30-year fixed mortgage rate and the yield on 10-year Treasury bonds. That spread is historically around 170 basis points, but it was closer to 300 basis points throughout most of 2023.
Advice for Buying or Selling a Home in 2024
Mortgage rates are expected to stay higher for longer before declining later this year, which has implications for prospective homebuyers and sellers. But regardless of current mortgage rate trends, Americans will still have a motivation to move, whether they want to downsize in retirement or need to relocate for a better job.
If you have any questions regarding mortgage rates, contact Think Real Estate Benefits advisors today.
619.251.1088
Source: Giovanetti, Erika. “Mortgage Forecast: Will Rates Go Down in 2024? | U.S. News.” USA NEWS, USA NEWS, 3 May 2024, money.usnews.com/loans/mortgages/mortgage-rate-forecast.
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