Mortgage Rate Forecast of 2024

Mortgage rates have remained around 7% so far in 2024, keeping many potential buyers on the sideline waiting for rates to dip. After hitting a peak in October, 2023, rates have slightly eased since then. Despite the prolonged period of high rates, many housing experts predict rates will drop by the end of the year based on the Federal Reserves guidance of interest rate cuts.

Why Are Mortgage Rates So High?

The surge in mortgage rates can be attributed to several factors:

Inflation: Persistent inflation has led the Federal Reserve to implement higher interest rates as a cooling measure for the economy.
Economic Recovery: Post-pandemic, the rebounding global economy has fueled higher rates. When more people are employed and incomes are stable or growing, more individuals are likely to buy homes, increasing the demand for mortgages and, consequently, the interest rates.
Government Borrowing: Increased government debt has exerted upward pressure on all interest rates, including those for mortgages.

When Will Interest Rates Go Down?

Here are some experts predictions on where rates are heading and when mortgage rates will go down:

2024 Forecast2025 Forecast
Fannie Mae6.4%6.2%
Mortgage Bankers Assoc.6.1%5.6%
National Assoc. of Realtors6.5%6.1%

Fannie Mae. Fannie Mae's March 2024 Economic and Strategic Research update anticipates a challenging year ahead for the housing market due to higher-than-expected mortgage rates, now forecasted to end the year at 6.4%. This adjustment follows recent strong jobs data and persistent inflation pressures, which may delay anticipated Federal Reserve rate cuts. Despite these conditions, an uptick in existing home sales is expected, driven by life events that necessitate moves, somewhat mitigating the impact of high interest rates on market activity. The outlook suggests a gradual recovery in housing market activity, supported by a slight increase in new home listings and ongoing high home prices​.

Freddie Mac. Freddie Mac's economic and housing market outlook for 2024 indicates a cautious optimism, with mortgage rates expected to remain above 6.5% for at least the first half of the year. The predictions highlight a gradual economic slowdown, with growth expected to moderate, impacting job creation and inflation rates. Despite the cooling economy, inflation is likely to stay above the Federal Reserve's 2% target in the short term, which could delay any rate cuts to later in the year. This economic environment suggests that while mortgage rates may ease slightly in the latter half of 2024, they will continue to exert pressure on the housing market. The housing market itself is expected to see a modest recovery in home sales as rates begin to drift downwards later in the year, yet this recovery will be limited by a persistent lack of inventory, which continues to push home prices upward. Freddie Mac forecasts a 2.5% increase in home prices in 2024, indicating that affordability will remain a challenge for many potential homebuyers​.

Mortgage Bankers Association (MBA). The Mortgage Bankers Association (MBA) predicts that mortgage rates will gradually decrease throughout 2024. They forecast that the average rate for 30-year fixed-rate mortgages will drop to around 6.1% by the end of 2024, with a further potential decrease to 5.5% by the end of 2025. This prediction is based on expectations of cooling economic conditions and a slowing rate of inflation, which would prompt the Federal Reserve to lower rates later in the year.

Mortgage Rate Forecast FAQs

Buying a house when interest rates are high isn't generally ideal due to higher monthly mortgage payments. However, if real estate prices are expected to continue rising, delaying a purchase could mean paying more in the long run. Consider the following:

  • Cost vs. Benefit: Calculate the long-term cost of buying now versus waiting for a potential drop in rates.
  • Renting vs. Buying Calculate the costs of renting vs. buying. Sometimes renting might be more cost-effective in the short term when rates are high.
  • Long-Term Perspective: Real estate typically appreciates over time, so buying at a higher interest rate might still be a worthwhile investment if you plan to stay in the home long enough.

While high interest rates may make refinancing less attractive for many homeowners, a cash out refinance to consolidate other high interest debts (like credit cards or personal loans) into a lower interest home loan can help reduce your monthly costs and simplify your finances. It's omportant to compare the costs of refinancing against the savings from lower interest rates on your other debts.

Buying a house when mortgage rates are high can be less cost-effective due to increased monthly payments and total interest costs. However, if home prices are rising, and you plan to stay in the house long-term, the investment could still be worthwhile. Consider your financial stability, compare renting versus buying costs, and think about potential home value appreciation. You could face higher home proces or miss out on your deam home if you are waiting for rates to go down.