Mortgage rates are influenced by many factors, such as the supply and demand of housing, the economic conditions, the monetary policy, and the expectations of the market. It is hard to predict with certainty how these factors will evolve in the future, but some experts have made projections based on current trends and assumptions.

According to a report by Freddie Mac, the average 30-year fixed-rate mortgage is expected to increase from 3.1% in 2021 to 3.4% in 2022 and 3.8% in 2023. The report also forecasts that the rate will reach 4% in 2024, which is still below the historical average of 5.6%.

However, other analysts have different opinions and scenarios, and some suggest that mortgage rates could go down in 2024 if there is a slowdown in the economic recovery, a rise in inflation, or a change in the Federal Reserve's policy. Ultimately, the direction of mortgage rates will depend on how the events unfold in the next few years, and borrowers should be prepared for both possibilities.

What Are the Current Trends and Predictions for Mortgage Rates?

Mortgage rates have been on a roller coaster ride in 2023, reaching their highest levels in over 20 years. According to Freddie Mac, the average rate on a 30-year fixed-rate mortgage is 7.29% as of November 22, 2023, up from 5.12% in January 2023. The main reason for this surge was the rising inflation rate, which hit a 31-year high of 9.1% in June 2023.

To combat inflation, the Fed started hiking the federal funds rate in March 2023, raising it six times by September 2023 to a range of 5.25% to 5.5%. The Fed also signaled that it might raise it one more time before the end of the year. These actions spooked the bond market, which pushed up bond yields and mortgage rates in anticipation of more tightening.

However, there are signs that inflation has peaked and started to moderate in recent months. The Consumer Price Index (CPI) slowed down to 3.7% in August 2023, below market expectations and within the Fed's target range of 2% to 4%. The core CPI, which excludes food and energy prices, also eased to 2.9%, down from 7% in June 2023.

The main drivers of lower inflation were falling energy prices, easing supply chain disruptions, fading base effects (or comparisons with low prices during the pandemic), and weakening consumer demand.

These developments have raised hopes that mortgage rates will start to trend downward in 2024, although perhaps not at a very fast rate.

Will Mortgage Rates Go Down in 2024?

Below are some expert predictions and forecasts for mortgage rates in 2024:

• Realtor.com: The real estate marketplace expects mortgage rates to average 6.4% in 2024, gradually decreasing to 6.1% by the end of the year.
• Redfin: The real estate brokerage forecasts that mortgage rates will stay above 6% for most of 2024, averaging around 6.5%.
• Business Insider: The financial news site predicts that mortgage rates will fall to somewhere between 5.4% and 6.8% in 2024, depending on the pace and extent of the Fed's rate cuts and the inflation outlook.
• Forbes: The financial magazine projects that mortgage rates will average 6.3% in 2024, with a range of 5.9% to 6.7%.
• Fannie Mae: The government-sponsored enterprise that buys and sells mortgages estimates that mortgage rates will average 6.6% in 2024, with a range of 6.3% to 6.8%.
• National Association of Realtors (NAR): The trade association for real estate professionals forecasts that mortgage rates will average 6.1% in 2024, with a range of 5.9% to 6.2%.
• Mortgage Bankers Association (MBA): The industry group for mortgage lenders projects that mortgage rates will average 5.7% in 2024, with a range of 5.4% to 5.9%.

What Does This Mean for Homebuyers and Homeowners?

Mortgage rates are still historically high, which means that buying a home or refinancing a mortgage in 2024 will be more expensive than in previous years.

However, the expected decline in mortgage rates could offer some relief and opportunities for homebuyers and homeowners who are willing and able to act quickly and strategically.

For homebuyers, lower mortgage rates could improve their home affordability and purchasing power, allowing them to buy more houses for less money.

However, they might also face more competition and higher home prices, as more buyers enter the market to take advantage of lower rates. Therefore, homebuyers should be prepared to act fast, make strong offers, and negotiate effectively to secure their dream home.

For homeowners, lower mortgage rates could provide an incentive to refinance their existing mortgage and save money on their monthly payments and interest costs. However, they might also have to pay higher closing costs and fees, as lenders try to recoup their losses from lower rates.

Therefore, homeowners should compare different loan options, shop around for the best deal, and calculate their break-even point (or how long it will take to recover their refinancing costs) before deciding to refinance.

What Factors Influence Mortgage Rates?

Mortgage rates are determined by a complex interplay of supply and demand, risk and reward, inflation and growth, and monetary and fiscal policies. Some of the main factors that influence mortgage rates are:

The Federal Funds Rate:

This is the interest rate that banks charge each other for overnight loans. It is set by the Federal Reserve, which uses it as a tool to influence the economy. When the Fed raises the federal funds rate, it makes borrowing more expensive, which can slow down inflation and economic activity.

When the Fed lowers the federal funds rate, it makes borrowing cheaper, which can stimulate inflation and economic activity. The federal funds rate affects mortgage rates indirectly, as it influences the cost of short-term funding for lenders and investors.

The Bond Market:

This is where investors buy and sell debt securities, such as Treasury bonds, corporate bonds, and mortgage-backed securities (MBS). MBS are pools of mortgages that are sold to investors, who receive interest payments from the borrowers. MBS are a major source of funding for mortgage lenders, who use the proceeds to make new loans.

The bond market affects mortgage rates directly, as it determines the yield (or return) that investors demand for buying MBS. When bond yields go up, mortgage rates go up, as lenders have to offer higher interest rates to attract investors. When bond yields go down, mortgage rates go down, as lenders can offer lower interest rates to compete with other investments.

The Inflation Rate:

This is the measure of how much the prices of goods and services increase over time. It reflects the purchasing power of money and the cost of living. Inflation affects mortgage rates indirectly, as it influences the expectations and actions of the Fed and the bond market.

When inflation is high, the Fed tends to raise the federal funds rate to cool down the economy and prevent prices from spiraling out of control. This can push up bond yields and mortgage rates, as investors demand higher returns to compensate for the erosion of their money's value.

When inflation is low, the Fed tends to lower the federal funds rate to boost the economy and prevent deflation (or falling prices). This can pull down bond yields and mortgage rates, as investors accept lower returns in exchange for more stability and safety.

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