As the calendar turned towards the end of the year, homebuyers were treated to a pleasant surprise as mortgage rates began a swift descent. Previously peaking at around 8% in the autumn, rates saw a drop to the mid-6% range by late December, a shift not anticipated by many until perhaps the end of 2024 under optimistic forecasts. With the U.S. Federal Reserve hinting at rate cuts in the near future, the burning question for many is: How low will mortgage rates go in 2024?
Conversations with real estate professionals reveal a consensus that mortgage rates are expected to stabilize within the 6% range throughout the year. However, there's a hopeful outlook that by year's end, we might see them dip into the 5% range.
“This year, we're looking at a downward trend for mortgage rates,” explains Claudia Sahm, founder of Sahm Consulting and former Federal Reserve economist. “The exact extent of this decline remains uncertain.”
After a period of elevated rates that dampened the housing market's momentum, a pivotal shift occurred mid-December when the Fed signaled the end of its rate hikes designed to curb inflation. This move has led to speculation of up to three rate cuts over the next year, contingent on continued inflation moderation.
As the Fed's short-term interest rates are a major determinant of mortgage rates, any reduction by the Fed is likely to result in lower mortgage rates for consumers.
“Mortgage rates are expected to decrease gradually, albeit with some fluctuations,” states Danielle Hale, Chief Economist at Realtor.com®. “It’s possible we’ll see slight increases before a consistent downward trend takes hold.”
Despite the recent dip, mortgage rates experienced a slight increase, with 30-year fixed-rate loans averaging at 6.75%, up from 6.61% in late December, influenced by new unemployment data indicating a stronger economy than preferred by the Fed in its battle against inflation.
“While we navigate through early year volatility, the trajectory for mortgage rates is expected to edge lower,” suggests David Stevens, CEO of Mountain Lake Consulting.
While experts are divided on how significant the drop in mortgage rates will be, the consensus leans towards staying in the 6% range, with potential dips into the high 5% range by year-end.
“The market is moving in the right direction, barring unforeseen events,” Sahm comments, noting the potential for meaningful savings for buyers in a market that has seen historic lows in affordability.
However, the ultra-low rates seen during the pandemic are unlikely to return, with Stevens remarking, “We shouldn’t expect to see those levels unless the economy faces severe downturns.”
The drop in mortgage rates has already begun to stir the market. Shmuel Shayowitz, president of Approved Funding, observes increased pre-approval activity among first-time homebuyers and growing interest in selling and buying as rates move into more favorable territory.
While rates in the mid-6% range might have deterred buyers in recent years, the new normal has adjusted expectations. Nonetheless, a decrease in rates could intensify competition in a market already grappling with a severe housing shortage, potentially rekindling bidding wars and further inflating home prices.
“The market is poised for activity, but not at the frenetic pace seen during the record-low rates of 2020 and 2021,” concludes Jacob Channel, Senior Economist at LendingTree.
As we look ahead, the landscape of the housing market in 2024 will undoubtedly be shaped by the direction of mortgage rates, balancing cautious optimism with the realities of supply and demand.
As mortgage rates begin their descent, the implications for the Greater Boston housing market could be profound. A decrease towards the lower end of the forecasted range could significantly enhance buying power, providing a much-needed boost to affordability in a market known for its competitive nature and high property values. This shift may invigorate the market, encouraging both first-time buyers and existing homeowners considering upgrades or relocations to act.
However, the anticipated fluctuation in rates also underscores the importance of strategic planning for prospective buyers. Navigating the volatility of mortgage rates with the expertise of a seasoned real estate professional like Ella Mobasseri could prove invaluable. Her deep understanding of the local market dynamics and commitment to her clients' best interests can help navigate through the uncertainties of mortgage rate changes, ensuring that buyers in the Greater Boston area capitalize on the opportunities presented by the current economic landscape.
