By Don DeBat

12-Dec-23 – It’s time for home buyers to do some crystal ball gazing on the outlook for where mortgage interest rates are headed in 2024.

“With interest rates on a downward slide for six consecutive weeks, there should be optimism entering 2024 for a better market,” said Dr. Jessica Lautz (left), Deputy Chief Economist for the National Association of Realtors (NAR).

On December 7, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed home loan rates averaged 7.03 percent nationwide, down from 7.22 percent a week earlier. A year ago, the rate was 6.33 percent.

Just six weeks of rate decline eases the bite on prospective home buyer’s wallets. For a buyer purchasing a $400,000 home, the typical mortgage payment drops to $2,135 – a monthly savings of $166, Lautz said.

“The average 30-year fixed-rate mortgage declined to nearly 7 percent last week, down from nearly 7.8 percent just six weeks ago,” noted Sam Khater (right), Freddie Mac’s Chief Economist. “When rates began to rapidly drop, purchase applications for mortgages initially rebounded, but this improvement in loan demand diminished in the last week.”

Fifteen-year fixed mortgages averaged 6.29 percent on December 7, down from 6.56 percent a week earlier. A year ago, 15-year loans averaged 5.67 percent nationwide.

Khater said although lower rates remain a welcome relief, “it is clear they will have to further drop to more consistently reinvigorate buyer demand.”

The Freddie Mac survey is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who place 20 percent down and have excellent credit.

Forecast is for lower interest rates

Local crystal ball gazers have optimistically predicted that interest rates could decline another 125 basis points in the next 12 months. That action would push benchmark 30-year fixed mortgages to 5.75 percent from the current 7 percent, and likely create a home buying surge in early 2025.

A recent Mortgage Bankers Association forecast sees mortgage rates ending 2024 at 6.1 percent, then dropping to 5.5 percent at the end of 2025.

MBA Chief Economist Mike Fratantoni said the rate decline is expected as the economy slows, inflation lowers, and the spread between mortgage and Treasury rates narrows.

“The Fed’s rate-hiking cycle is likely nearing an end, but while Fed officials have indicated that additional rate hikes might not be needed, interest cuts may not come as soon – or proceed as rapidly – as previously expected,” said Fratantoni (left).

However, Fratantoni said a looming recession in early 2024, tighter credit, and dwindling pandemic-era savings could spell trouble and trigger an economic downturn.

NAR economists, forecasting for the Realtor group, see mortgage rates averaging 6.8 percent in 2024, then declining to 6.5 percent by year’s end.

Both interest rate creep and a shortage of resale home listings have put upward pressure on home prices, according to the NAR.

“In October of 2023, it required 39 percent of the average household paycheck to buy a typical for-sale home with a 30-year fixed-rate mortgage after placing a 20 percent down payment,” NAR analysts reported.

“This income figure has typically ranged around 21 percent, so it is well above historical average,” said the NAR.

Moves of necessity – for job changes, family situation changes, and downsizing to a more affordable market – are likely to drive sales in 2024, NAR predicted. “Although mortgage rates are expected to ease throughout 2024, the continuation of high costs will mean that existing homeowners will have a very high threshold for deciding to move.”

Many families likely will choose to stay in place, especially if they are lucky to have an existing 3 percent mortgage, experts say.

FHA loan limits rise

As part of their annual requirement to keep pace with the change in housing prices, the Federal Housing Finance Agency and the Federal Housing Administration have increased the amount buyers can borrow for loans backed by the federal government.

For FHFA, the single-family loan limit will increase to $766,550, a $40,350 jump over the 2023 threshold of $726,200.