After a year where mortgage rates soared to their highest since the turn of the century, analysts are more optimistic that the cost of a home loan is likely to fall in 2024.
Mortgage rates went up partly due to the Federal Reserve's instituting aggressive interest rate hikes to battle historic high levels of inflation. The central bank has seen inflation slow to 3.1 percent in November. Policymakers held rates at their meeting in December at their current rate of 5.25 to 5.5 percent for the third time in a row. The move prompted experts to suggest that the Fed was done with raising rates.
Policymakers also suggested that they may begin cutting rates in 2024. They project that in 2024, the federal funds rate will fall to 4.6 percent. If this prediction holds, it could spark increased declines in mortgage rates as well.
Over the last few weeks, the 30-year fixed rate has declined to 6.61, according to Freddie Mac. Economists expect the drop to continue in the new year.
"The rapid descent of mortgage rates over the last two months stabilized a bit this week, but rates continue to trend down," Sam Khater, Freddie Mac's Chief Economist, said on Thursday.
In 2024, housing economists suggest that rates will hit the mid-6 percent level.
"Mortgage rates will continue to ease in 2024 as inflation improves and Fed rate cuts get closer. Mortgage rates could near 6.5% by the end of the year, a key factor in starting to provide affordability relief to homebuyers," Danielle Hale, realtor.com's chief economist, said earlier this month.
Read more: How to Get a Mortgage: Step-by-Step Guide
Redfin's chief economist Daryl Fairweather suggested that the Fed will cut rates as well.
"The Fed will likely keep interest rates at their current level at the start of the year even though inflation is largely under control. But then they're likely to cut rates two or three times starting in the summer, which is why mortgage rates will decline as the year goes on," she wrote recently.
Fairweather suggested that mortgage rates would continue to stay elevated above COVID-era levels even as they dropped to about 6.6 percent by the end of 2024.
"The gradual decline in rates combined with the small dip in prices will bring homebuyers some much-needed relief," she said.
Over at the National Association of Realtors (NAR), the expectation is also that mortgage rates will fall to the lower end of 6 percent.
"NAR forecasts that mortgage interest rates will average 6.3 [percent] in 2024," Jessica Lautz, deputy chief economist, said earlier in December.
"While the lock-in effect of higher mortgage rates has stalled the real estate market in 2023, the momentum is moving in the right direction for stronger sales activity in 2024," she added.
As mortgage rates decline, those monthly payments will come down as well. But some economists say mortgage rates will need to fall much lower than they are at the moment for homes to become affordable for Americans.
"The market is still struggling, and I don't think it can come back to life unless the affordability improves," Mark Zandi, chief economist at Moody's Analytics, told Newsweek on Thursday. "That requires either that mortgage rates fall further, house prices decline, incomes increase more quickly, or some combination of all those things."
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
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Omar Mohammed is a Newsweek reporter based in the Greater Boston area. His focus is reporting on the Economy and ... Read more
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