Mortgage Rate Forecast February 2024

After topping 8 percent in October 2023, mortgage rates fell sharply to close out the year. As of Jan. 31, the average rate on 30-year loans remained below 7 percent, according to Bankrate’s survey of lenders.

One key reason for the pullback: The Federal Reserve has signaled it’s done raising interest rates and plans to lower them this year. As a result, investors bid down 10-year Treasury yields, which serve as an informal benchmark for 30-year fixed mortgage rates.

However, the Fed keeps delaying the moment at which it cuts rates because the U.S. economy remains surprisingly strong. Unemployment is just 3.7 percent, and economic growth was a robust 3.3 percent in the fourth quarter of 2023. Inflation had dipped to 3.1 percent for November, but jumped to 3.4 percent in December, well above the central bank’s official target of 2 percent.

“Inflation has eased from its highs without a significant increase in unemployment,” Fed Chairman Jerome Powell said during his Jan. 31 news conference. “That is very good news. But inflation is still too high, ongoing progress in bringing it down is not assured, and the path forward is uncertain.”

All of that means the Fed is putting off rate cuts, a move that would nudge mortgage rates lower.“Interest rates took the elevator going up but are going to take the stairs coming down,” says Greg McBride, CFA, Bankrate’s chief financial analyst.

Mortgage rate predictions February 2024

Many forecasters expect rates to remain well under 7 percent this year. McBride expects them to drop all the way to 5.75 percent by the end of 2024.

“Inflation has been coming down — and coming down faster than expected in recent months — which bodes well for mortgage rates,” says McBride. “You won’t have to wait until the Federal Reserve starts cutting short-term interest rates to see mortgage rates move lower. Mortgage rates will move lower in February, just in time for spring homebuyers.

“As inflation cools and the Fed finally begins cutting, rates should drift down to 6 percent, says Lisa Sturtevant, chief economist at Bright MLS, a real estate listing service in the Mid-Atlantic region.

“Although there was no move on interest rates at this week’s meeting of the Federal Open Market Committee, there is anticipation that the Fed will begin to cut rates this spring,” says Sturtevant. “Mortgage rates, though not directly tied to the Federal funds rate, are also expected to come down this year.”

For homebuyers, a drop in mortgage rates could be a mixed blessing.

“Lower rates will draw more buyers into the market, creating more competition and putting upward pressure on prices,” says Sturtevant.

Current mortgage rate trends

After rising sharply through October 2023, mortgage rates have trended back down. The average rate on a 30-year mortgage was 6.84 percent as of Jan. 31, according to Bankrate’s survey. This represents a welcome drop from 8.01 percent on Oct. 25.

When will mortgage rates go down?

Overall, forecasters expect mortgage rates to continue easing.

The Mortgage Bankers Association projects rates to fall to 6.1 percent by year’s end, while Fannie Mae forecasts they’ll be at 5.8 percent. The National Association of Realtors estimates rates will average 6.3 percent for the full year.

Still, mortgage rates aren’t easy to predict.

“A lot of us forecasted we’d be down to 6 percent at the end of 2023,” says Sturtevant. “Surprise, surprise, we [weren’t].”

One wild card has been the unusually large gap between mortgage rates and 10-year Treasury yields. Normally, that spread is about 1.8 percentage point, or 180 basis points. This year, the gap has been more like 280 basis points, pushing mortgage rates a full percentage point higher than the 10-year benchmark indicates.

“There is room for that gap to narrow,” says Sturtevant, “but I’m not sure we’ll get back to those old levels. In this post-pandemic economy, the old rules don’t seem to apply in the same ways. We’re sort of figuring out what the reset is. Investors have a different outlook on risk now than they did before the pandemic. We’re just in this weird transition economy.”

What to do if you’re getting a mortgage now

Mortgage rates are at generational highs, but the basic advice for getting a mortgage applies no matter the economy or market:

• Improve your credit score. A lower credit score won’t prevent you from getting a loan, but it can make all the difference between getting the lowest possible rate and more costly borrowing terms. To help qualify for a conventional mortgage, you’ll generally need a score of 620 or higher. However, the best mortgage rates go to borrowers with the highest credit scores, usually at least 740. In general, the more confident the lender is in your ability to repay the loan on time, the lower the interest rate it’ll offer.
• Save up for a down payment. Putting more money down upfront can help you obtain a lower mortgage rate, and if you have 20 percent, you’ll avoid private mortgage insurance (PMI), which adds costs to your loan. If you’re a first-time homebuyer and can’t cover a 20 percent down payment, there are loans, grants and programs that can help. The eligibility requirements vary by program, but are often based on factors like your income.
• Understand your debt-to-income ratio. Your debt-to-income (DTI) ratio compares how much money you owe to how much money you make, specifically your total monthly debt payments against your gross monthly income. Not sure how to figure out your DTI ratio? Bankrate has a calculator for that.
• Check out different mortgage loan types and terms. A 30-year fixed-rate mortgage is the most common option, but there are shorter terms. Adjustable-rate mortgages have also regained popularity recently.

FAQ

• How are mortgage rates determined?

  It might seem like a bank or lender are dictating mortgage terms, but in fact, mortgage rates are not directly set by any one entity. Instead, mortgage rates grow out of a complicated mix of economic factors. Lenders typically set their rates based on the return they need to make a profit after accounting for risks and costs.

  The Federal Reserve doesn’t directly set mortgage rates, but it does set the overall tone. The closest proxy for mortgage rates is the 10-year Treasury yield. Historically, the typical 30-year mortgage rate was about 2 percentage points higher than the 10-year Treasury yield. In 2023, that “spread” was more like 3 percentage points.

• When should I refinance my mortgage?

  Mortgage rates have jumped to 23-year highs, so not many borrowers are opting to refinance their mortgages now. However, if rates come back down, homeowners could start looking to refinance.

  Deciding when to refinance is based on many factors. If rates have fallen since you originally took out your mortgage, refinancing might make sense. A refi can also be a good idea if you’ve improved your credit score and could lock in a lower rate or lower fees. A cash-out refinance can accomplish that as well, plus give you the funds to pay for a home renovation or other expenses.