The Mortgage Bankers Association (MBA) has released a noteworthy forecast for mortgage rates that offers a ray of hope for prospective homebuyers. Despite current mortgage rates standing at over 7.5% as of mid-October, the MBA anticipates a substantial decline, with rates expected to drop to 6.1% by the end of 2024. Furthermore, the MBA projects a further reduction to 5.5% for the 30-year mortgage rate by the close of 2025. This promising outlook hinges on various factors shaping the U.S. economy.
Why Would Mortgage Rates Fall?
A pivotal factor influencing the anticipated rate decrease is the projection of a recession in the first half of 2024, as indicated by the MBA. Alongside this, the MBA foresees a rise in unemployment and a slowdown in inflation, classic signs of an economic downturn. These developments are expected to prompt a response from the Federal Reserve, likely leading to a reduction in interest rates. This expectation forms the basis for the mortgage industry’s optimism.
In light of these economic dynamics, mortgage lenders could witness a surge in origination volume in 2024, potentially increasing to $1.95 trillion from the $1.64 trillion expected in the current year. Purchase originations are also on an upward trajectory, predicted to rise by 11%. It’s important to note that the pandemic years were a boom period for the mortgage industry, with a record $4.4 trillion in mortgages originated in 2021.
High Mortgage Rates and Their Impact
However, the high rates resulting from the Federal Reserve’s interest rate hikes in 2022 have weighed on home-buying activity. Homes have become considerably more expensive, with the median principal and interest payment soaring to $2,170 in August, compared to $1,284 in August 2021, based on MBA data. The expectation is that the Federal Reserve may halt further interest rate hikes, providing some relief to prospective homebuyers. The MBA does not anticipate interest rate hikes in November and suggests that December’s decision will be data-dependent.
Nevertheless, lenders should prepare for a temporary slowdown in the coming months, which is typical during the winter season. However, a turnaround is expected by the end of spring in 2024, offering a more favorable market for homebuyers. The persistence of tight inventory continues to exert upward pressure on home prices. In the third quarter of 2023, the median sales price of a home in the United States stood at $416,100, according to the Federal Reserve Bank of St. Louis.
A key factor contributing to the resilience of home prices is the entry of millennials into their prime home-buying years, a point emphasized by Joel Kan, Deputy Chief Economist at the MBA. This demographic trend is expected to counterbalance any significant price declines, ensuring that home prices continue their ascent over the next three years.
Mortgage Rate Outlook for 2024: What to Expect
The much-anticipated drop in mortgage rates can’t come soon enough for prospective homebuyers. The positive news is that the wait for lower rates appears to be nearing its end. However, it’s important to temper expectations, as rates are unlikely to return to the historic lows witnessed in 2020 and 2021. Even with lower rates on the horizon, homebuyers will face other challenges, including increased competition and rising home prices.
Forecasts indicate that most major institutions expect rates to decline in 2024. Fannie Mae’s projection suggests that 30-year mortgage rates will fall within the 6.3% to 6.8% range, while the National Association of Realtors (NAR) predicts rates will hover closer to 6%. Notably, the MBA forecast is more bullish, envisioning 30-year mortgage rates dropping to 5.4% by the close of 2024. While the exact magnitude of the rate drop is subject to debate, there is a consensus that mortgage rates are poised to dip below 7% in 2024.
The possibility of rates plummeting to 3% remains a point of interest for many. However, the likelihood of such an event is currently slim. The historic lows of 2020 and 2021 were primarily a response to the COVID-19 pandemic, with the Federal Reserve driving rates lower to mitigate economic crises. Barring an extraordinary event, these record-low rates are unlikely to return anytime soon. According to Lawrence Yun, Chief Economist at the National Association of Realtors, sub-3% mortgage rates are improbable in the foreseeable future.
Timing Matters: Buy Now or Wait on Mortgage Rates?
With mortgage rates currently at their highest level in over two decades, the question arises: Is it advisable to wait for rates to drop before diving into the housing market? While the allure of lower rates is understandable, there are distinct advantages to taking action now.
A significant majority of borrowers currently enjoy rates substantially lower than the prevailing rates. Federal Housing Finance Agency data, analyzed by Redfin, reveals that over 90% of homeowners have mortgage rates below 6%, with many below 4%. This has led to a reluctance among homeowners to sell their properties, as they are unwilling to relinquish their advantageous rates. Consequently, this dynamic has limited housing inventory, but it has also contributed to keeping prices relatively stable.
Real estate experts advise that, despite the anticipation of lower rates in 2024, it may be prudent to seize the opportunity now. With lower competition and potentially lower home prices, purchasing a home at current rates and refinancing once rates decrease could be a savvy strategy. However, it is essential to compare offers from multiple mortgage refinance lenders to secure the best possible rate.
In conclusion, the mortgage rate market is undergoing a transformation, with expectations of lower rates on the horizon. Prospective homebuyers face a critical decision: whether to act now or wait for rates to drop further. The dynamics of the housing market, combined with economic factors, suggest that the time may be ripe to make a move. If you’re contemplating a home purchase or refinancing, it’s advisable to explore your options today. To navigate this evolving landscape effectively and secure your dream home with a lower borrowing rate, consider reaching out to Sell For 1 Percent for revolutionary, expert guidance. Call us today and take the first step toward realizing your homeownership goals.