Norada Real Estate Investments

Summer 2024 Mortgage Rate Predictions: Relief for Buyers?

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In the summer of 2024, mortgage rates are predicted to stay flat or possibly decrease slightly, but not significantly drop below current levels. Wait times for a major rate decrease could be lengthy. This article explores expert predictions & helps you decide: buy now or wait?

The housing market has undergone a significant shift in recent times. Previously scorching hot, fueled by record-low mortgage rates, the market has begun to cool as interest rates have climbed steadily. This rise in rates has impacted both buyers and sellers, creating a unique environment for summer 2024.

For potential homebuyers, the dream of securing a mortgage at rates between 2% and 3%, as seen in 2021, seems like a distant memory. Current rates hover around 7% for a 30-year fixed-rate loan, a significant increase compared to the past few years. Experts predict these low rates are unlikely to return anytime soon, barring a major economic downturn.

  • The current average rate (6.89%) is close to 7% (July 11, 2024).
  • The data suggests some stability with minimal weekly and yearly changes.
  • The 52-week average (7.02%) reinforces the idea of rates being near 7%.

The higher interest rates have a ripple effect, deterring some potential sellers from listing their homes. Sellers are hesitant to give up their current, advantageous mortgage rates for a higher one when buying a new home. This creates a situation where demand for homes, while still present, is dampened by the higher financing costs.

The combined effect of lower buyer demand and a limited housing supply has pushed home sales activity to its lowest level since the Great Recession. The financial burden of a mortgage payment has also increased considerably, with some estimates suggesting a rise of over 60% since mid-2022.

While these factors have undoubtedly slowed the market, the question remains: what will summer 2024 hold for mortgage rates and the housing market in general? This is where expert predictions come into play, and we will explore them below.

Summer 2024 Mortgage Rate Forecast – Sizzle or Fizzle?

Summer is traditionally a hot season for home buying, with favorable weather conditions and families aiming to settle into a new place before the school year begins. However, the high mortgage rates of 2024 could throw a wrench into this seasonal trend.

Experts acknowledge the historical popularity of summer for home buying but also recognize that increased competition and potentially higher prices might greet buyers this year. The average sale price for Q1 2024 was already at $513,100 according to the Federal Reserve Bank of St. Louis. When you factor in both higher interest rates and higher home prices, the incentive to buy could diminish for some potential buyers.

So, should you wait for a better time to buy, or is now the right opportunity? This is a question many grapple with, and the answer depends on your individual circumstances.

Experts predict a potential decrease in mortgage rates towards the end of 2024. However, this hinges heavily on overall inflation control and the Federal Reserve's confidence in a sustained decline in inflation. If this occurs, the Fed might lower the federal funds rate, which would have a cascading effect, pushing mortgage rates down as well.

Here are some factors to consider if you're contemplating buying a home now:

  • Financial Strength: A substantial down payment (ideally 20% or more) can help you avoid private mortgage insurance, saving you money in the long run.
  • Creditworthiness: Excellent credit allows you to secure the best possible interest rate from lenders. Shopping around for the best deal is crucial.
  • Long-term Plans: If you plan to stay in the home for a significant period, short-term fluctuations in interest rates become less impactful.
  • Mortgage Options: Consider a 15-year fixed-rate mortgage, which typically offers lower interest rates than 30-year loans.
  • Refinancing Potential: Remember, you're not locked into today's rates forever. Refinancing your home loan when rates drop lets you take advantage of lower interest payments.

The decision to buy ultimately comes down to your personal situation and risk tolerance. While waiting might lead to lower rates and potentially less competition, it's impossible to predict the future with certainty. Market conditions can change quickly.

Weighing Your Options

The decision to buy a home now or wait for a potentially more favorable market hinges on several factors. Here's a breakdown of the pros and cons to help you navigate this crucial choice.

Buying Now: Potential Advantages

  • Finding Your Dream Home: The market might have fewer buyers due to higher rates, increasing your chances of finding the perfect house without intense competition.
  • Locking in a Predictable Payment: Even with high rates, you'll know exactly what your monthly mortgage payment will be, offering budgeting stability.
  • Building Equity Sooner: The longer you wait, the longer it takes to start building equity in your own home. Ownership allows you to benefit from potential future appreciation in the property's value.
  • Taking Advantage of Seller Incentives: In a buyer's market, sellers might be more flexible, offering closing cost assistance or other incentives to sweeten the deal.

Buying Now: Potential Disadvantages

  • Higher Interest Rates: This translates to a larger monthly payment and potentially less buying power for your budget.
  • Limited Inventory: While competition might be lower, the overall number of houses on the market could be restricted as well.
  • Risk of Future Rate Drops: If rates do decrease significantly in the future, you might miss out on potential savings through refinancing.

Waiting to Buy: Potential Advantages

  • Potentially Lower Rates: Waiting could allow you to snag a better interest rate, lowering your monthly payment and stretching your buying power.
  • More Inventory: As the market adjusts, the number of houses for sale might increase, giving you a wider selection.
  • Time to Save for a Larger Down Payment: A higher down payment reduces your loan amount and potentially eliminates private mortgage insurance, saving you money over time.

Waiting to Buy: Potential Disadvantages

  • Competition Heats Up: If rates do drop, buyer demand could surge, leading to bidding wars and potentially higher purchase prices.
  • Missing Out on the Perfect Home: Waiting might mean the house of your dreams gets snatched up by another buyer who's ready to act now.
  • Market Uncertainty: Predicting future market conditions is difficult. There's no guarantee rates will definitively fall within your desired timeframe.

Ultimately, the decision is yours. Consider your financial situation, risk tolerance, and long-term goals. If you're ready to find your dream home and build equity, buying now might be a great option, even with higher interest rates. However, if you prioritize getting the absolute best rate and have the flexibility to wait, then holding off could be a prudent strategy.

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Experts Predict Mortgage Rates to Be Above 6.5% for Rest of 2024

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Freddie Mac's recent forecast paints a picture of a housing market in transition. While the U.S. economy maintains a forward momentum, its pace has eased, and inflation remains a pressing concern for the Federal Reserve. These factors are likely to keep mortgage rates elevated for most of 2024, impacting affordability and potentially dampening homebuyer enthusiasm.

Breaking Down Latest Mortgage Predictions

Mortgage Rates: A Plateau Above 6.5%

Fasten your seatbelts for a period of prolonged high borrowing costs. Freddie Mac predicts mortgage rates to hover above 6.5% for the remainder of 2024. This is a modest improvement compared to the peaks of 7.8% witnessed in 2023, but it still represents a significant hurdle for potential homebuyers. With affordability already strained, these rates could sideline some buyers from the market, particularly those who were counting on historically low rates to qualify for a loan.

Home Sales: Stalled Momentum

The housing market is expected to experience a muted performance in the coming months. While demand, particularly from first-time homebuyers, remains steady, affordability constraints will likely put a damper on overall sales activity. This is due to the combined effect of high mortgage rates and rising home prices, making it more challenging for many to qualify for a loan or fit a monthly payment within their budget. First-time homebuyers may find themselves priced out altogether, or forced to make significant concessions in terms of location or property size.

Home Prices: Defying Gravity

Despite the anticipated slowdown in sales, Freddie Mac predicts that unwavering demand and limited housing supply will continue to push home prices higher in both 2024 and 2025. This is a surprising trend in a cooling market, but it highlights the persistent imbalance between available homes and eager buyers. First-time homebuyers may find themselves competing for a smaller pool of available properties, potentially driving prices even higher due to bidding wars. This could further squeeze out some buyers from the market.

Mortgage Origination: A Mixed Bag

Purchase originations, which represent mortgages for new home purchases, might see a slight increase in 2024 compared to 2023. This is primarily driven by the projected rise in home prices, even if the number of transactions dips. However, this doesn't necessarily translate to a surge in homeownership rates. Refinance activity, on the other hand, is expected to remain minimal due to the current high-rate environment. With many homeowners already locked into historically low rates, there's little incentive to refinance at a significantly higher cost.

A Glimpse of Hope: Potential Rate Cut

A glimmer of hope exists in the form of a possible rate cut by the Federal Reserve later in 2024. This scenario hinges on the job market cooling down sufficiently to bring inflation under control. If this occurs, it could lead to a gradual decrease in mortgage rates, offering some much-needed relief to potential homebuyers. However, the Federal Reserve will need to carefully navigate this decision to avoid jeopardizing economic progress.

Challenges for Aspiring Homeowners

Affordability remains a significant hurdle for many aspiring homeowners. The current market presents a double whammy: rising interest rates that increase monthly mortgage payments and high home prices that stretch budgets thin. Additionally, trade-up buyers, who might typically sell their existing home to purchase a new one, are likely to stay put. This is because giving up their current low mortgage rates for a higher rate on a new property creates a financial disincentive to move. This inertia within the market could further limit the available housing stock for first-time buyers.

The Bottom Line: Strategic Considerations

The housing market is entering a period of adjustment, and strategic planning is crucial for prospective buyers. Be prepared for a competitive market with potentially higher costs due to elevated mortgage rates. Patience may be a virtue, as waiting for a potential rate cut later in the year could present a more favorable borrowing environment.

However, economic factors are fluid, and there's no guarantee of a significant decrease in rates. Aspiring homeowners should weigh these factors carefully, considering their budget and long-term financial goals, before making a move. It may also be beneficial to consult with a mortgage professional to explore loan options and determine their borrowing power in the current climate.

By carefully considering these predictions and remaining adaptable, aspiring homeowners can increase their chances of navigating this complex market and achieving their dream of homeownership.

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Mortgage Rates Likely to Decline Further Over the Summer: CPI Report

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As the summer progresses, mortgage rates are anticipated to decline further, potentially preventing monthly housing costs from rising excessively. On June 12, daily average mortgage rates dropped to their lowest level in three months following the latest CPI report, which indicated a continued cooling of inflation.

Although the Federal Reserve only forecasted a single interest-rate cut for the year during their June 12 meeting, it is possible they hadn't fully considered the recent inflation data. This might lead to a revision of their projection in the upcoming meeting.

Mortgage Rates Likely to Decline Further Over the Summer

In recent days, mortgage rates have shown volatility. Rates spiked after a strong jobs report last Friday but subsequently dropped. According to Chen Zhao, Redfin’s economic research lead, the latest inflation report is beneficial for homebuyers as it has already led to a decrease in mortgage rates. However, the Fed meeting this week might moderate these declines.

Balancing Act Between Rates and Home Prices

Zhao also cautioned that while lower mortgage rates are favorable, they could stimulate demand more than supply, potentially negating any reduction in home-price growth. This situation might drive prices up, ultimately balancing out the impact on homebuyers' monthly payments. Thus, while rates decrease, the overall effect on monthly housing costs may remain neutral if home prices increase correspondingly.

Current Market Conditions

High costs have currently sidelined some potential homebuyers. Pending home sales have decreased by 3.5% year over year, marking the largest decline in over three months. Redfin’s Homebuyer Demand Index, which measures requests for tours and other buying services from Redfin agents, has dropped 18%, reaching its lowest point since February.

Despite these figures, there is a glimmer of hope: mortgage-purchase applications have risen by 9% week over week. On the selling front, new listings have increased by 7.8% year over year, though they remain below typical springtime levels.

This limited supply is one reason home prices continue to rise despite sluggish demand. The imbalance between supply and demand underscores the complexity of the current housing market..

Indicators of Homebuying Demand and Activity

To further understand the current market conditions, let's examine some key indicators:

  • Daily average 30-year fixed mortgage rate: 6.98% as of June 12. This rate has decreased from 7.03% a week earlier and down from a 5-month high of 7.52% five weeks earlier. However, it is still up from 6.94% year-over-year.
  • Weekly average 30-year fixed mortgage rate: 6.99% for the week ending June 6. This is slightly down from 7.03% a week earlier and down from a 5-month high of 7.22% a month earlier, but up from 6.71% year-over-year.
  • Mortgage-purchase applications (seasonally adjusted): Increased by 9% from a week earlier as of the week ending June 7. Despite this increase, applications are down 12% year-over-year.
  • Redfin Homebuyer Demand Index (seasonally adjusted): Down 2% from a month earlier as of the week ending June 9 and down 18% year-over-year. This index measures requests for tours and other homebuying services from Redfin agents.
  • Touring activity: Up 28% from the start of the year as of June 9. In contrast, at this time last year, touring activity was up 22% from the start of 2023.
  • Google searches for “home for sale”: Unchanged from a month earlier as of June 10.

Future Projections for Mortgage Rates

Looking ahead, the trajectory of mortgage rates and housing costs will depend on several factors, including future inflation data and the Federal Reserve's actions. If mortgage rates continue to drop without a corresponding rise in home prices, homebuyers could benefit from lower monthly payments.

However, if lower rates significantly boost demand without an increase in supply, home prices might climb, offsetting the advantage of reduced mortgage rates.

The coming months will be critical for the housing market. While declining mortgage rates present an opportunity for lower monthly housing costs, the market dynamics of supply and demand will ultimately determine their impact.

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Housing Under a Second Obama Administration

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A big part of my job is helping our clients project the most likely scenarios for the housing market.  Now that we know who will be President, my job just got easier because we have four years of experience with Obama and a divided Congress, so we know what we are getting.

However, there is never a dull moment.

Here is what keeps me up at night:

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Fed Set to Hold Rates Low as US Economy Struggles

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The US Federal Reserve is expected to keep US interest rates at historic lows when it meets later Wednesday, as it tries to keep a languishing recovery on track. The Fed's top rate-setting body is widely expected to keep its main rate of borrowing at between zero and 0.25 percent to help spur economic growth.

Faced with reams of data showing the recovery is still fragile, the debate over whether the Fed should quickly raise rates to stave off inflation has all but disappeared in recent months. The Fed's announcement will still be keenly watched as investors look for any hint that a double-dip recession is on the way, or that the worst of the danger has passed.

Jobs growth remains anemic with employers still reluctant to add permanent positions during the fragile recovery. The unemployment rate is expected to hover near 10 percent for quite some time as the economy regroups after the worst downturn since the Great Depression of the 1930s Consumers have been cautious about spending, which normally drives about two-thirds of the activity in the world's largest economy.

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The Quick and Expected Climb to 6% Mortgage Rates

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Mortgage rates have been steadily climbing, from a low of 4.5% around November 27, 2009 to above 5% on December 22, 2009.  For the past two months I've been warning that this will eventually happen.  It's not because the economy is recovering; it isn't recovering.  The reason mortgage rates will rise to 6% or above, sooner rather than later is because that is the "natural" market.

About a year ago, the Federal Reserve announced a $1.25 Trillion mortgage rates subsidy, by purchasing mortgage-backed securities in the open market, through March, 2010.  Right before the subsidy was announced, mortgage rates were at or above 6%.  The subsidy was referred to as Bernanke's "nuclear option" meaning he was using an extraordinary monetary stimulus to keep mortgage rates artificially low.

One year and 12 months into the 15-month game, we're at $1.07 Trillion spent on this open market MBS purchase program.  This means that the Fed still has about $150 Billion to spend in three months, so mortgage rates should stay around 5%, right?  After all, the Fed only spent $80 billion/month and they have at least 2 months of money left.

Markets are discounting mechanisms meaning that traders anticipate how potent the Fed can be.  The Fed is just about out of bullets and MBS traders know it.  Let me try to give you an example of what the Fed did by recanting the explanation I gave, to a Del Mar Realtor, on the beach this summer.

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When Will Mortgage Interest Rates Increase?

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Maze-Interest-Rates On November 19, 2009 Freddie Mac recorded an average 30 year mortgage rate at 4.83%, down from 4.91% the previous week. Just over one year ago, the 30 year mortgage rate averaged 6.04%.  So long as you have solid credit and a 20% down payment, whether or homeowner, this time in history is certain to mark historic lows for home buying.  In addition, those who still have equity in their property can take advantage of an incredible refinance opportunity.

Mortgage companies have seen steady rises in applications for refinance, but certainly not at the volumes seen just two years ago. Why isn't everyone flocking to refinance? The answer is quite simple, homeowner appraisals are often below the requirements needed to refinance and many homeowners are dealing with loss of income due to unemployment or wage cutbacks. The only solution is for the economy to pick up and create more jobs along with more competition for increased wages. Unfortunately such a task, although eventually likely, is not in the near future. Economists across the nation are predicting additional declines in jobs during the first quarter of 2010. Job creation is likely to remain slow during most of 2010.

Yet there is still a silver lining to the doom and gloom. It is likely that the federal government will do all they can to keep interest rates low up until actual job creation becomes more robust. Interest rate hikes over the next 6 to 9 months will only occur if outside-international influences force the hand of our financial markets to increase rates. Although a remote chance of this exists, I for one believe we have another year of healthy-low interest rates within the real estate market. Once rates do inch up it is likely to be welcome, so long as inflation remains tame and not hyper.

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