2024 Mortgage Rate Outlook Anticipates Persisting High Rates

Image showing high mortgage rates

At the beginning of 2024, many analysts anticipated five to six rate cuts from the Federal Reserve. This changed course due to stubbornly high inflation exceeding the Fed’s target and a strong labor market. Faced with this data, the Fed shifted to a wait-and-see approach.

Recent meeting minutes from April 30th-May 1st reveal the Fed’s concern about inflation remaining above their target. While further rate hikes seem unlikely for now, officials want to see inflation show sustained moderation before considering cuts. As a result, most analysts now predict a maximum of one rate cut, possibly later in 2024.

While the Federal Reserve does not directly set mortgage rates, its decisions about the federal funds rate affect the interest rates banks charge each other. This, in turn, influences the rates offered on mortgages. Mortgage rates are a complex web, also influenced by the supply and demand for mortgages, inflation, the labor market, and overall economy. On top of these factors, an individual’s credit score and loan amount significantly impact the specific interest rate they will receive.

Many predictions for 2024 anticipated mortgage rates would dip to the 5%-6% range by year-end, improving housing affordability. However, these forecasts have proven overly optimistic. The 30-year fixed rate has defied expectations, staying above 6.6% since January and even surpassing the 7% mark for several weeks. As of May 23rd, Freddie Mac data shows the rate still hovering around 6.94%.

Here’s a quick rundown of what some of the major real estate organizations are forecasting for mortgage rates in the remainder of 2024:

• According to Veros, 30-year mortgage rates are expected to hold near 6.9% by the end of 2024. This means borrowing costs for home purchases are likely to remain elevated. Additionally, with most housing markets projected to see steady or increasing home prices, affordability challenges are expected to persist.
Fannie Mae’s May 2024 Housing Forecast predicts the 30-year fixed rate mortgage at 7% for Q4 2024.
Freddie Mac predicts rates will stay elevated throughout the year based on their expectation of a single rate cut towards the end of the year.
• The Mortgage Bankers Association (MBA) forecasts an average 6.4% rate for 30-year mortgages in their May 2024 report
• The National Association of Realtors‘ (NAR) forecast for mortgage rates stands at 6.5% for Q4 2024.
Wells Fargo predicts that mortgage rate will be 6.5% in Q4 2024.

While most experts expect mortgage rates to remain high in 2024, opinions vary on the exact levels. Some predict rates will hover around 7%, while others foresee a drop of approximately 50 basis points by year-end. With borrowing costs remaining high, some potential buyers may be priced out, leading to a decrease in overall market activity. The high mortgage rates are likely to dampen price increases so that prices might experience slower growth or even stagnate in some markets. In some overheated markets, a combination of high rates and fewer buyers could lead to price corrections, meaning home values might decrease slightly, while areas with strong job markets and relatively lower priced housing could see more resilience in home prices.

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