It’s no secret that home loan interest rates are at generational highs and reducing the purchasing power of first-time and repeat homebuyers as a result. While mortgage rates will hopefully decrease from recent highs over the next year, they’re unlikely to return to the all-time lows available just a few years ago.
If you’re wondering how mortgage rates will look in 2024, here’s what you should know.
Our prediction
Fixed mortgage rates are likely to remain stubbornly high and remain near 20-year highs for homebuyers and borrowers wishing to refinance. However, if the Federal Reserve chooses to lower the federal funds rate in response to a tepid economy or reduced inflation levels, mortgage lenders could then offer lower rates and better terms to borrowers in response.
Here’s an overlook from multiple mortgage rate experts about what to expect as 2023 draws to an end and the 2024 homebuying season unfolds:
Lawrence Yun, chief economist at the National Association of Realtors (NAR)
“A little drop in mortgage rates from nearly 8% currently to under 7% or even near 6% is expected by the spring of next year. The key reason is for the Fed to cut interest rates in 2024 once the inflation data is clearly under control.”
Robert Dietz, chief economist at the National Association of Home Builders (NAHB)
“NAHB is forecasting a gradual decline for mortgage rates as the economy slows due to the lagged effects of tighter monetary policy. Slowing economic growth and grudgingly lower inflation readings will place downward pressure on long-term interest rates after peaking in late 2023. These conditions should allow the Fed to begin reducing nominal interest rates by mid-2024 while keeping inflation-adjusted rates as restrictive.”
Peter C. Earle, economist at the American Institute for Economic Research
“If we look at the rate predictions of financial institutions that trade in futures and swaps (market implied policy rates), there’s a consensus that the Fed will have cut rates a bit by the end of 2024 and even more in 2025. None of that is guaranteed, of course, but the firms that deal in money markets think rates are headed lower starting next year.
If the Fed lowers rates, whether it’s because the US enters a recession or there’s a pronounced economic slowdown, mortgage rates will follow. If mortgage rates retrace their steps with the Fed’s policy rate on the way down in the same way they did on the way up, at a Fed Funds rate of 4% to 5%, 30-year fixed mortgages would be in the roughly 6% to 7% range. But that doesn’t mean we won’t see mortgage rates at over 8% before the retreat begins.”
Dr. Anessa Custovic, Ph.D., chief information officer (CIO) of Cardinal Retirement Planning Inc.
“Mortgage rates in 2024, especially for the 30-year mortgage, will continue to have a ‘premium’ of around 2% above the 10-year Treasury during 2024. This puts mortgage rates solidly in the range of 7.25% to 7.75%. Even if there are unexpected rate cuts in 2024, we cannot see a pathway to 30-year mortgages below 6% in 2024.”
Freddie Mac, Fannie Mae and Mortgage Bankers Association
Freddie Mac anticipates that, due to inflation remaining above the Federal Reserve’s target 2% goal and the Fed not cutting the federal funds rate, mortgage rates in turn will likely remain above 6% for at least the rest of 2023. Fannie Mae predicts rates peaking at 7.7% in the fourth quarter of 2023 and reducing from 7.6% to 7.1% over the course of 2024.
In its November 2023 Mortgage Finance Forecast, the Mortgage Bankers Association (MBA) anticipates 30-year rates starting in 2024 at 7.1% and gradually declining to 6.1% at the close of the year before dipping as low as 5.5% in 2025.
Keep in mind: Along with rate trends, home prices are also impacting the ability to get a mortgage. Economists are mixed on future prices as some anticipate sellers in certain markets will start lowering prices to offset higher rates.
While a nationwide housing shortage kept home values and prices higher during 2023, home prices are expected to at least stabilize and not rise as quickly in 2024.
What do mortgage rates look like now?
Current mortgage rates have been floating between approximately 7.5% and 8.3% since October 2023 for 30-year fixed interest rates, with an average of 7.52% as of Dec. 1, 2023. The average 15-year mortgage rate has ranged between about 6.7% and 7.4% in that same time, with an average of 6.71% as of Dec. 1, 2023. Rates for both terms are approximately 75 basis points higher year-over-year.
As is typical, refinancing a mortgage incurs higher rates than a home purchase loan. As of Nov. 30, 2023, a 30-year fixed refinance has an average rate of 7.70% and 6.92% for a 15-year mortgage refinance.
Tip: Because interest rates will likely remain near 20-year highs for the foreseeable future, sellers and homebuilders might be more willing to offer buydown mortgages. This loan program temporarily reduces the mortgage rate for up to the first three years of the repayment period, which can help reduce your interest costs during that initial period.
While the popularity of temporary rate buydowns cooled in 2023, they remain a possible strategy for borrowers struggling to afford a home in the current high-rate environment.
History of U.S. mortgage rates
Mortgage interest rates first broached 7% for a 30-year fixed loan in October 2022. This happened again in May 2023, after which the rate fluctuated and hit a peak of 8.3% in October 2023. This made for the highest rates since March 2002, which was the last time 30-year rates went above the 7% threshold.
To put the current rates in perspective, the lowest recorded average 30-year mortgage rate was 2.65% for the week ending on Jan. 7, 2021. Present rates appear to remain closer to the historical average compared to the below-average rates that began with the Great Recession when the 30-year rate mostly remained between 3% and 5% from January 2009 until May 2022.
Higher payments but lower interest costs: See current 15-year mortgage rates.
What affects mortgage rates?
Several factors impact mortgage rates, such as:
- The state of the economy.
- Inflation.
- The Fed’s monetary policies.
- Housing market conditions.
- The bond market.
- Mortgage demand.
- Lender overhead costs.
- Borrowers’ financial profiles.
While you can’t control most of these economic factors, some strategies that could help you qualify for a better interest rate on a mortgage include:
Final verdict
Experts estimate that mortgage interest rates should peak near 7% — possibly up to 8% — and gradually trend lower, potentially landing between 5% and 6% before the end of 2024.
As a reminder, the macroeconomic and housing market conditions are continually changing. As such, questions remain regarding what the future actions of the Federal Reserve will look like and how quickly rates will drop once and if the current trend of higher-for-longer rates reverses.
Frequently asked questions (FAQs)
Mortgage rates are likely to remain elevated near 20-year highs that will be between 7% and 8% for a 30-year fixed purchase loan. Fannie Mae has estimated an average rate of 7.3% for 2024 while the MBA has a more aggressive rate prediction as low as 6.1% at the end of 2024.
A good mortgage rate is generally considered to be a rate lower than the national average. This was 7.22% for a 30-year loan as of Nov. 30, 2023, according to Freddie Mac.
In general, you’ll need to be a well-qualified borrower with good to excellent credit, a low DTI ratio and sufficient income to be eligible for the lowest rates. Buying discount points can also help reduce your rate, though it also requires a larger upfront contribution.
As of Dec. 4, 2023, the average rate for a 30-year VA purchase loan was 6.68% while the average rate for a 30-year VA refinance loan was 6.77%.
Like with other government-backed loans, rates on VA loans tend to be somewhat lower than rates on conventional mortgages. This is because there’s less risk for the lender as the government agency insures a portion of the loan if the borrower defaults.
FHA loans are insured by the Federal Housing Administration. These loans, which are designed for low- and moderate-income borrowers, carry less risk for mortgage lenders. Because of this, FHA loans are generally easier to qualify for compared to conventional mortgages.
Down payment requirements for FHA loans are also low, with borrowers who have credit scores of 580 or higher permitted to put only 3.5% down. However, if you have a credit score between 500 to 579, you’ll have to put at least 10% down. Additionally, while FHA loans don’t require PMI, they do come with an upfront and annual mortgage insurance premium (MIP) that can last for 11 years or the entirety of the mortgage, depending on the loan.
Conventional home loans, on the other hand, are mortgages that aren’t backed by a government agency. They typically require a minimum 620 credit score. First-time homebuyers might be able to put as little as 3% down, though you’ll have to make a down payment of at least 20% to avoid PMI, which is required until your loan-to-value (LTV) ratio reaches 80%.
