Experts Project 2024 Mortgage Rates: How Much Will They Drop?
Despite mortgage rates remaining stubbornly high, most housing market experts expect them to recede over 2024, assuming the Federal Reserve acts on its signaled interest rate cuts. However, whether mortgage rates fade enough to create a meaningful shift in home affordability remains uncertain.
Mortgage Rate Predictions for 2024
Here is how some experts predict market conditions will affect the average 30-year, fixed-rate mortgage in 2024:
- Freddie Mac. “We forecast mortgage rates to stay above 6.5% through this quarter and next.”
- Fannie Mae Housing Forecast. The 30-year mortgage rate will end 2024 at 6.4%, up from 5.9% in the previous forecast. The average mortgage rate will remain at 6.7% in Q2.
- National Association of Realtors chief economist Lawrence Yun. “The budget deficit remains high, and the various inflation metrics remain above the comfort level. That means the mortgage rates will likely be in the 6% to 7% range for most of the year.”
- Mortgage Bankers Association (MBA). MBA’s baseline forecast is for the 30-year fixed-rate mortgage to end 2024 at 6.1% and reach 5.5% at the end of 2025 as Treasury rates decline and the spread narrows.
- Bank of America head of retail lending Matt Vernon. “The Fed’s likely decision to cut rates in 2024 would be a key factor that could breathe new life into the housing market. However, it’s important to note that significant drops in mortgage rates might not happen in the early months of 2024. If any reductions occur, they are likely to be gradual, possibly beginning in the latter part of the year.”
- MLS chief economist Dr. Lisa Sturtevant. “[D]uring the early part of the year, expect some bumpiness in rates as new economic data are released and as more buyers get back into the market. However, the overall outlook for mortgage rates in 2024 suggests more rate drops, with Bright MLS forecasts predicting rates to hit 6.2% by the fourth quarter.”
- KPMG Economics senior economist Yelena Maleyev. “Mortgage rates are expected to stay below 7% in the coming months as inflationary pressures ease and the path to [Federal Reserve] rate cuts in the second quarter remains clear. Upside surprises to inflation, employment and wages in the coming months would make the Federal Reserve consider waiting even longer to cut rates, which would then push up other interest rates, including mortgages.”
- Palisades Group managing member and chief investment officer Jack Macdowell. “The market has consistently overestimated the likelihood, timing, and quantity of the Federal Reserve’s rate cuts. Based on current data, it is hard to envision more than one to two cuts in 2024 and hard to see mortgage rates drop below 6.25%
Fed Holds Rates Steady, Again: What This Means for Mortgage Rates in 2024
In a widely expected move, the Federal Open Market Committee (FOMC) voted unanimously to leave the benchmark federal funds rate unchanged after its two-day March meeting. The federal funds rate is the overnight borrowing rate for commercial banks and credit unions and indirectly influences mortgage rates.
The decision marks the fifth consecutive meeting that the FOMC has kept its policy rate steady between 5.25% and 5.5%.
Over the past two years, mortgage rates have skyrocketed to their highest levels in decades amid the Fed’s efforts to tame inflation through aggressive interest rate policy actions. Rates have recently begun to recede—albeit sluggishly—due partly to the Fed’s rate-hike pauses.
The Fed’s latest summary of economic projections maintained the three planned rate cuts for 2024, but Federal Reserve Chair Jerome Powell reiterated the timing of those rate cuts will depend on more inflation data.
“We want more confidence that inflation is coming down sustainably toward 2%,” Powell said at a post-meeting press conference. The Fed also considers employment readings and other economic data in its decision-making process.
So, what does all this mean for mortgage rates?
“Inflation is still running hotter than the Fed would like and increased at a pace that is faster than the Fed wants to see,” said Melissa Cohn, regional vice president of William Raveis Mortgage, in an emailed statement.
Even so, Cohn expects the Fed to start cutting rates in June or July.
Since mortgage rates often react to the Fed’s actions, this latest pause means that home buyers may have to wait a bit longer to see improvements in affordability. In the meantime, motivated buyers and sellers will need to get creative.
Danielle Hale, chief economist at Realtor.com, said in an emailed statement that “options such as assumable mortgages—which allow a seller to let a buyer take over an existing mortgage, including the existing (likely lower) rate—can be a valuable hack for buyers who can find them.”
The next two-day FOMC meeting is April 30 to May 1.
Is 2024 a Good Time To Refinance?
Whether or not 2024 will be a good time to refinance depends on several factors, including if the Fed cuts interest rates this year and by how much. The mortgage rate you got when you financed your home is another major factor.
Over 40% of U.S. mortgages originated in 2020 and 2021, when interest rates were at record lows. There were also some 14 million mortgage refinances during the same time. If you were lucky enough to secure a mortgage during that time, then 2024 is likely not the ideal time to refinance.
“If rates are lower than when you first got your mortgage, it might be a favorable time,” says Vernon. However, whether rates go lower in 2024 will depend, in part, on economic conditions.
Experts believe that once the Fed cuts rates in 2024, refinance volume will improve as borrowers who took on high mortgage rates will jump at the chance to lower their monthly costs.
“If [mortgage] interest rates dropped to even 5.5%, it could result in significant savings for these homeowners, as refinancing at that rate could result in an average monthly payment of $1,917 for them, a reduction of $284 every month,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion, in an emailed statement.
If you’re considering refinancing to lower your monthly payment, keep in mind that not all options yield less interest over the life of the loan.
“Remember that just because you can get a lower rate doesn’t mean you should immediately refinance,” says Vernon. “You may be paying a lower monthly mortgage, but you may have to also extend the life of your loan and refinancing could cost you more in interest.”
Current Mortgage Rate Trends
The average mortgage rate for a 30-year fixed is 7.12%, nearly double its 3.22% level in early 2022.
The average cost of a 15-year, fixed-rate mortgage has also surged to 6.55%, compared to 2.43% in January 2022.
In the current environment, ARMs might be more affordable than those with fixed rates. The latest average for a 5/1 ARM was 6.04%.
Current Mortgage Rates for April 2024
What Do Current Rates Mean for Refinancing in 2024?
Refinance volume remains at low levels. Here’s how refinance activity has trended recently, according to the MBA’s Weekly Mortgage Applications Survey.
For those hoping to refinance, mortgage rates are not cooperating.
By the end of March, the average 30-year fixed rate of 6.79% was close to half a percentage point higher than the same week a year ago, and refinance rates tend to be higher than purchase rates.
Meanwhile, many borrowers are sitting on the historically low mortgage rates they nabbed during the pandemic. Those rock-bottom rates are unlikely to return anytime soon—if at all—resulting in limited motivation for many homeowners to refinance.
“[W]ith rates remaining elevated, there is very little incentive right now for rate/term refinances,” said Joel Kan, vice president and deputy chief economist at MBA, in a press statement.
With the Fed pausing rate hikes across five consecutive meetings and signaling at least three policy rate cuts in 2024, refinance activity may gain steam, fueled by borrowers who purchased homes when rates were hovering near 8%.
Fannie Mae forecasts refinance origination volume to hit $397 billion in 2024, over a 13% downgrade from its previous forecast.
How To Get a Lower Mortgage Refinance Rate
The good news is that, despite elevated rates, there are methods you can employ to secure a lower rate. These methods might be especially beneficial if you bought a home between mid-October and early November 2022 or mid-August through early December 2023 when rates were over 7%.
Because there are closing costs and fees associated with refinancing, many mortgage experts say refinancing only makes sense if you can snag a rate that’s at least 1% lower than your current rate.
Here are some actions you can take to whittle down your refinance rate:
- Get rate quote estimates from at least three lenders
- Ask lenders about waiving or reducing closing costs
- Negotiate with your lender to match the best deal
- Take steps to strengthen your credit score
- Save for a larger down payment
- Choose a shorter-term loan
- Buy discount points
Mortgage Rate Predictions for the Next 5 Years
While predicting mortgage rates for the next five years is a tall order, especially considering the unprecedented fluctuations over the past year, experts say the low housing inventory will be a key factor in where rates go over the long term.
“When rates come down, we’re going to be in store for another hot housing market where there are more buyers than sellers jacking up prices because we haven’t solved the problem” of low inventory, says Daryl Fairweather, chief economist at Redfin. “It’s still that affordability problem. That’s going to stay with us.”
As far as which direction interest rates go in the years ahead, Fairweather expects declines. However, the timeline for this downward trend remains uncertain.
“In every scenario, rates are going to come back down,” says Melissa Cohn, regional vice president at William Raveis Mortgage. “It’s just a matter of when.”
That “when” for Cohn won’t be in the immediate future—but she doesn’t see it as too far off.
“Mortgage rates will decline over the course of the next two to three years as the rate of inflation declines and hopefully gets to the Fed target of 2%,” Cohn says. “Mortgage rates will be at least a full 2% lower by 2025.”
She adds that if the inflation rate holds at 2%, then we should see mortgage rates remain at lower levels for the balance of the next five years.
What Affects Mortgage Rates?
A complex set of factors impact mortgage interest rates, including broader economic conditions, the monetary actions of the Federal Reserve (to some extent) and inflation. However, long-term mortgage rates are directly impacted by the bond market. The rate you’re offered on a mortgage will also depend on the lender you work with, its business costs and your financial profile.
Demand for mortgages can also affect rates, pushing them higher as available capital for lending tightens. Conversely, when there’s less borrower demand—as we’re seeing now due to average interest rates hovering in the high 6% to low 7% range—lenders might consider offering more competitive rates or other incentives to attract borrowers.
How To Shop For the Best Mortgage Rate
Getting an optimal rate on a home loan can save you a significant amount of money over time. Here are some tips that can help you get the best rate possible for your situation:
- Keep your eye on rates. Mortgage rates are constantly changing. Keeping a close watch will make it easier to find and lock in a better rate.
- Check your credit. When you apply for a mortgage, the lender will review your credit to determine your creditworthiness as well as your interest rate. In general, the higher your credit score, the better your rate will be. To get an idea of where you stand, check your credit before you apply and dispute any errors with the appropriate credit bureau to potentially boost your score.
- Shop around and compare lenders. Consider options from as many mortgage lenders as possible to find the best deal for you. Prospective buyers have saved more than $1,500 over a loan’s term by getting two quotes from lenders and saved roughly $3,000 when they sought five quotes, according to Freddie Mac.
