• 29 Dec, 2023

Are Mortgage Rates Expected to Drop in 2024?

What do the experts say about mortgage rate predictions for 2024?

2023 has been a tough year for most of the homeowners who were looking to purchase a new home. Leaving the past aside, how about mortgage rates in 2024?

The rates are highly dependent on inflation. But in 2024, the inflation rate is set to cool down and experts predict that the mortgage rate will come down.

But, when will they fall? Will the mortgage rate predictions 2024 come true? Will mortgage rates drop in 2024 below 5%? This blog has got all the answers you need. Stick until the end to find out what the experts say about the mortgage rate forecast 2024.

3 reasons why are mortgage rates important

Why is it always about rates, rates, and rates?

These rates have the power to influence the decisions of homebuyers, homeowners, and even the overall health of the economy.

Before jumping into the mortgage rate predictions 2024, let’s have a quick overview of mortgage rates.

• Helps determine the cost of borrowing

  
  

  •   Mortgage rates directly affect the cost of borrowing for homebuyers. When the rates increase, overall mortgage expenses go up and this impacts the monthly mortgage payments plus the total amount that will be repaid over the life of the loan.
    
    Check your rates at Home Loan Rate of Interest without any impact on your credit scores.

    
    

  •   Constant changes in mortgage rates can impact the overall affordability of the homes that you are eyeing. You may ask how.

    
    

  •   If interest rates fluctuate, you may need to lower the loan amount you intend to borrow.

    
    

  •   As a result, you'll need to choose a home that fits the loan amount provided by your lenders. So, higher rates may pose challenges for prospective buyers like you.

    
    

• Offers refinancing opportunities

  
  

  •   Are you looking to refinance your existing mortgage? If yes, you might have to continuously monitor mortgage rates because when the rates are lower, you can send in your refinance applications immediately.

    
    

  •   When tapping into lower rates you may get a chance to reduce monthly payments or shorten the loan term, ultimately saving money over time.

    
    

• Rates impact the demand for houses

  
  

  •   Let’s say you are hunting for houses and the mortgage rates are lower compared to last week. In this scenario, you will encounter increased competition among other potential homebuyers like you.

    
    

  •   But, if the rates are higher the demand for houses will go down. This is done by the lending institutions to tackle the economic slowdown and balance between the supply and demand of the housing market.

    
    

There are other factors as well that affect the rise and fall of these mortgage rates, which we will discuss in the upcoming sections. Before we continue, let’s first take a look at what experts say about the mortgage rate predictions 2024.

What are the mortgage rate predictions for 2024?

We know your curiosity levels are about to explode! By the end of the blog, we are sure you will get an idea of how mortgage rates in 2024 are going to change.

• To consider the current scenario, the rates are only higher because the Fed has decided to increase the Federal Funds rate target to deal with the inflation without causing major trouble to the economy.

  
  

• The present 30-year mortgage rates are around an average of 7%. But are there chances for the rates to fall up to 5% next year?

  
  

• The good news is that mortgage rates in 2024 are not expected to rise as fast as they did in 2023 because the inflation rate is cooling down.

  
  

• Experts are predicting that the rates might move in a downward direction supporting homebuyers to lock their mortgages at affordable rates.

  
  

• However, experts also say that a two-point decrease in the rates wouldn’t make much of a difference.

  
  

You need to keep in mind that the Federal Reserve usually takes its time when it comes to handling monetary policy changes. They don't want to surprise or upset the financial markets by making sudden changes. Instead, they prefer to make gradual adjustments.

Here’s what Nick Bailey [President and CEO of real estate company RE/MAX] has to say about the mortgage rates in 2024 -

“I believe that we'll see similar rate activity in the first half of 2024, but it wouldn't surprise me if rates go down in the second half.”

Additionally, he points out that the inflation rate reached 3% in October 2023, which could potentially prompt the Fed to lower interest rates. He also notes that rates below 7% might become more common.

Have you ever wondered how these rates are set? What goes behind the constant fluctuations of mortgage rates?

Stay tuned, your answer is right here 👇

2 Factors influencing the mortgage rates 2024

As the new year is approaching, home buyers are starting to monitor the rates and the Federal Reserve’s decision on mortgage rates.

But there are certain factors that you need to keep in mind when you’re monitoring the rates so that you understand the projections and the reasons behind the rate fluctuations.

Come let’s have a closer look at these factors below.

1. Economic conditions

   
   

   • Let’s say the economy is doing great, the job market is thriving, consumers have the power to spend on goods and services without any hassles. With this growth, comes an increased demand for mortgages and home purchases.

     
     

   • Lenders will then move on to charging higher interest rates. But, on the contrary, when the economy starts to slow down, rates decrease.

     
     

   • This happens when people are experiencing layoffs and increased competition in the job market. It is during these times that lenders may reduce rates to encourage people to apply for mortgage loans.

     
     

2. Federal Reserve policies

   
   

   • If you have been researching mortgage rate predictions 2024, you know how important Fed decisions are.
     
     FYI - Federal Reserve is the Central bank of the U.S. and the overall financial system in the country is overseen by the Fed.

     
     

   • The monetary policy developed by the Fed is one of the important factors influencing the economy and mortgage interest rates.

     
     

   • But, keep in mind that the Fed doesn’t set these mortgage rates, they set the Federal funds rate and adjust the money supply up and down.

     
     

Are you a prospective homebuyer, actively looking to purchase a home in 2024? If that’s you, read how Federal Reserve rate cuts influence home buying strategies in 2024.

Now that you are familiar with the main factors that affect your mortgage rates, let’s also figure out a bit about mortgage default rates.

All you need to know about default rates

Did you know that mortgage default rates started to decline and reached 3.5% in the first quarter of 2023?

These rates are also referred to as mortgage delinquency rates or home loan default rates.

Mortgage default happens when the homeowners are at least 30 days overdue on their mortgage payment.

When homeowners struggle to meet mortgage payments, default rates rise, impacting both the borrowers and the housing market.

You might ask – What’s the relationship between mortgage rates and mortgage default rates?

Well, there is a correlation between mortgage rates and default rates. During periods of higher rates, mortgage default rates may increase. However, when 2024 predictions are taken into account, we have to wait for the official release of the mortgage default rates

How do the mortgage rates affect you?

Mortgage rates are not just numbers you see. They have a real effect once you sign your papers and start your monthly mortgage payments.

From taking out a new mortgage to refinancing your mortgage, these rates continue to have an impact on your monthly payments. Here’s how:

• For existing home buyers

  
  

  •   Do you have a fixed-rate mortgage? If yes, you can enjoy a certain level of stability despite rate fluctuations. This is highly helpful when the rates are on a constant rise.

    
    

  •   If you plan to refinance, you can hold on a bit more and wait for official rate announcements in 2024. Don’t hurry, as the rates are high at the moment.

    
    

• For prospective home buyers

  
  

  •   You need to be strategic in your timing while entering into the housing market. Monitoring mortgage rate trends continuously allows individuals to identify optimal periods for making their move.

    
    

  •   As quoted by Nick Bailey, the rates might continue to be the same for the first half of 2024. Based on these statistics, you can either wait or opt for adjustable-rate mortgages if purchasing a home is urgent for you.

    
    

  •   A drop in rates can be an advantageous time to buy, while rising rates may prompt buyers to wait for more favorable conditions.

    
    

Lastly, while you are monitoring the mortgage rates, shop around for lenders as well. Selecting the right lender will also have an impact on your mortgage terms.

Understand your needs clearly and communicate them to lenders to identify the right one capable of meeting your requirements.

Are the rates dropping in January 2024?

Finally, can you anticipate the rates to drop in the first month of 2024? As of now, The National Association of Realtors expects mortgage rates will go to an average of 7.5% in the first quarter of 2024, dropping to 6.9% in the second quarter.

But, as per the prevailing economic conditions, there won’t be much difference between past rates and the 2024 mortgage rates.

Based on the patterns the rates are only moving up and down to one point which only makes a slight difference in your monthly mortgage payments.

So, if you have the time to wait until the rate drops further to 3 or 4 points, you stand to benefit, potentially securing more favorable terms on your mortgage. Until then keep an eye on the changing mortgage rates!

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