Mortgage Rates Forecast: Must Check Out Before Sealing the Deal

Mortgage rates are likely to fall later this year for three main reasons: a weaker U.S. economy, the Federal Reserve's interest rate cuts, and cooling inflation. 

But when will home interest rates go down? We know you need an idea of when to make your move. While the exact timing is always tricky to predict, experts indicate that the 30-year fixed mortgage rate could drop into the mid-6% range by year-end and stay in the high-5% range. 

Additionally, they suggest keeping an eye on key economic indicators and Federal Reserve announcements, as these will be significant signals for any potential decline in mortgage rates in the future.

Here are the current mortgage rates in 2024 and what may happen to the housing market:

• Fannie Mae sees rates increasing from 6.8% in 2024 and 6.4% in 2025. 

• The Mortgage Bankers Association sees rates at 6.6% in 2024 and 6% in 2025

• National Association of Home Builders anticipates rates will be 6.85% in 2024 and 6.14% in 2025. 

• National Association of Realtors forecasts mortgage rates dropping from 6.9% in 2024 to 6.4% in 2025. 

• Realtor.com predicts a rate of 6.8% in 2024, with an alternative estimate of 6.5% in the long term.

• Wells Fargo expects mortgage rates to drop from 6.75% in 2024 and 6.09% in 2025.

When Will Mortgage Rates Go Down?

The mortgage rates have already declined by 0.5% from May to August.

While the Fed Open Market Committee has not yet reduced its benchmark rate, markets often anticipate future policy changes — one of many factors that influence mortgage rates.

Looking ahead, home values are expected to fall by about 10% by December, especially if rates continue to ease and the economy weakens further. However, mortgage rates are not expected to drop to the 3% or low 4% range soon. Instead, they will likely stay in the low 6% range until the end of 2025.

This is the home loan interest rates forecast for this year, according to experts:

Fannie Mae: Rates to Drop To 6.7%

The latest July Housing Forecast from Fannie Mae has the average 30-year fixed rate falling to 6.7% by year-end after an average of 6.8% in Q3. According to the mortgage giant, mortgage rates are expected to average 6.8% in 2024 and 6.4% in 2025.

Freddie Mac: Rates Will Stay Over 6.5%

As indicated in Freddie Mac's July Economic and Housing Market Outlook, mortgage rates will likely remain above 6.5% through at least the end of 2024. As long as employment growth continues to slow without significantly suppressing inflation, they anticipate one more rate cut from the Federal Reserve later this year.

According to Freddie Mac economists cited in their report, this rate cut could lead to a slight easing of mortgage rates in 2024, providing some relief for future homebuyers. They predict mortgage rates will fall further by 2025, dropping below 6.5%, making homeownership more accessible and spurring continued growth in the housing sector.

MBA: Rates Will Decline to 6.6%

In its July Mortgage Finance Forecast, the Mortgage Bankers Association projects that mortgage rates will decrease from 6.8% in Q3 of 2024 to 6.6% by the end of the year. The industry group expects rates to drop to 6% by the end of 2025, with an average of 5.8% in 2026.

NAR: 6.7% Heading Into the New Year

According to its latest Quarterly U.S. Economic Forecast, the National Association of Realtors anticipates mortgage rates will decline to 6.7% by the fourth quarter.

Realtor.com: Rates Will Decline to 6.5%

In a 2024 Housing Market Forecast, Realtor.com, a website that offers real estate listings, projects that the average rate will be 6.8% this year and drop to 6.5% by the end of 2024.

Realtor.com believes that some buyers may be waiting for mortgage rates to drop over the next few months. Mortgage rates fell to a four-month low in July on expectations of a Federal Reserve interest rate cut, possibly as early as September, according to Realtor.com senior economist Ralph McLaughlin in a housing trends report released for July 2024.

Wells Fargo: Rates will decline by 6.5% at Year-end

According to Wells Fargo Bank's most recent U.S. Economic Outlook, the 30-year conventional mortgage rate will be 6.75% in the third quarter of 2024 and fall to 6.5% by the end of the year. Economists at Wells Fargo predict that the average rate will drop below 6% in the fourth quarter of 2025.

Reasons for Prolonged High Mortgage Rates

Economic conditions, investor demand, and Federal Reserve policy determine mortgage rates. However, the federal funds rate does not directly affect long-term rates, which include those for 15-year and 30-year fixed mortgages. The Fed does not set rates that banks and other lenders can charge. Although the Fed doesn't set mortgage rates, these rates tend to rise and drop for the same reasons that the Fed increases and decreases rates. The latest 25-basis-point rate increase was in July 2023, when the central bank raised the federal funds rate. They have done so seven times in 2022 and another four times in 2023.

In its July 2024 rate-setting meeting, the Fed kept the target range at 5.25% to 5.5%, implying it has completed its tightening cycle. The Fed's latest projections suggest one rate cut in 2024, down from the three cuts expected earlier this year. Wells Fargo expects easing to start in September, while Fannie Mae sees a single cut by the end of 2024. According to Mike Fratantoni, MBA's senior vice president and chief economist, if the Fed starts a series of rate cuts in September, mortgage rates are likely to continue drifting lower through the end of the year.

Another reason mortgage rates are expected to decline is the unusually large spread between the 30-year fixed mortgage rate and the yield on 10-year Treasury bonds. This spread is historically around 180 basis points, but it was closer to 300 basis points throughout most of 2023, reflecting diminished demand for mortgage-backed securities amid investor uncertainty. As investor appetite returns, this spread is expected to shrink, which could help bring mortgage rates closer to 6%.

How Does the Housing Market Affect the Current Mortgage Rates?

To be a successful buyer or seller, you need to anticipate when will home interest rates go down and also stay updated with the home loan interest rates forecast.

Available Inventory Might Increase as Buyer Demand Softens

The housing market is cooling as rising mortgage rates ease the intense activity seen during the Pandemic Housing Boom. However, home prices in many markets are still rising. The shifts in supply and demand suggest that the pace of home price appreciation may slow down in the coming months.

As mortgage rates eventually lower, more inventory and increased home buying can be expected, especially in an economy with job growth. Despite this, the number of listings remains about 36% lower than usual for this time of year, and purchase mortgage demand is still roughly 45% below levels seen in 2018 and 2019.

Rate-Lock Effect Continues But Gradually Ease

Low inventory levels may persist due to the rate-lock effect, where higher current mortgage rates discourage existing homeowners from selling because they have much lower rates on their existing mortgages.

However, the supply of existing homes has increased by 16% from a year ago, reaching 1.21 million unsold units. New home inventory has also been at its highest since January 2008, with about half a million unsold properties on the market. 

New Construction Means More Options for Homebuyers

Although supplies are still tight due to the limited number of resale homes available, new construction will help provide more options for buyers.

Are You Planning to Buy or Sell a Home in 2024?

Mortgage rates are projected to remain higher than initially expected for the next few months before potentially declining later in 2024 and into 2025. These fluctuations in mortgage rates will significantly impact homebuyers' purchasing power and sellers' market conditions. Despite these trends, Americans will continue to have reasons to relocate, whether for better job opportunities or to downsize in retirement, regardless of the future of mortgage rates.

Check out what to look for when buying or selling a home in 2024:

Buyer Beware: There Are Drawbacks to Waiting for Rates to Drop

Many people are holding off on buying a home, hoping mortgage rates will drop. According to a survey, two-thirds of buyers are waiting for home loan rates to drop below 6%, but that might not happen until 2025.

Even though rates have dropped slightly recently, they haven’t been low enough to make a big difference. Meanwhile, home prices have continued to rise. From May 2023 to May 2024, prices went up nearly 6%, and they’re expected to keep going up, just not as fast as before.

Here’s what experts are predicting for 2024:

• Fannie Mae: Home prices up 6.1%

• MBA: Home prices up 4.5%

• CoreLogic: Home prices up over 4%

• NAR: Prices to reach around $405,300 for existing homes and $434,100 for new homes

• Freddie Mac: Prices up 0.5%

Even though prices aren’t expected to drop significantly, the market should be a bit more balanced. Buyers might find more options and fewer bidding wars, and they may not have to give up important protections like home inspections.

Also, if you’re looking at new homes, there might be less competition. Builders are keen to sell and might offer deals or lower interest rates to sweeten the offer.

For Home Sellers: You’re a Buyer, Too

Selling your home comes with its own challenges, especially if you still need to buy a new one. Current mortgage rates are higher than those of many existing homeowners. On average, existing mortgage rates are around 4.1%, but most homeowners have rates below 6%. This makes it hard for some to give up their current, lower-rate mortgages.

Despite this, some homeowners might decide to move this year. According to surveys, some people are staying put because they like their current home or because home prices are high. But if you do decide to sell, you might have a good amount of equity built up thanks to rising home prices. You can use that equity to help with your next purchase.

So, whether you’re buying or selling, consider these factors as you navigate the housing market in 2024.

What Does This Indicate About Rates for Mortgage Refinancing?

Mortgage refinance rates are expected to decrease slightly this year but will not return to the pandemic lows. Most homeowners might not find refinancing beneficial right now due to higher current rates compared to their existing ones. However, recent homebuyers from 2022 and 2023 who secured high-interest mortgages are looking to refinance when rates fall below 6%, with some waiting for rates to drop below 5%.

Refinancing can still be advantageous for switching to a shorter repayment period or converting an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. Cash-out refinancing is another option for tapping into home equity but involves higher loan balances and interest payments.

Stay Updated with Home Loan Rates Forecast & Get the Best Rates with Total Mortgage!

Whether you’re looking to refinance or purchase a new home, staying informed about market trends and home loan interest rate forecasts is crucial. For personalized advice and to explore your mortgage options, consider contacting Total Mortgage. Our expertise and national reach can help you find the best solutions for your home financing needs.