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How far will mortgage rates fall this year? Here's what some experts think

Some think mortgage rates won't fall much more than they already have, while others think there's room for a 1% decrease in 2024. Getty Images/iStockphoto

At the end of 2023, with inflation easing, the Federal Reserve hinted that it would start cutting interest rates in 2024. Projections from the Fed's December meeting forecasted the federal funds rate to fall to 4.6% — that's down from the current target range of 5.25%-5.5%. The Fed's actions and comments prompted mortgage interest rates to start falling to close out the year, and there could be room for further mortgage rate decreases in 2024. 

However, many experts have a relatively subdued mortgage rate forecast for 2024. If rates do fall more, many experts predict a small change, based on current data, especially after the latest inflation report showed an uptick last month. 

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How far will mortgage rates fall in 2024?

Over the past few months, many experts predicted that mortgage rates would fall in 2024. But to some extent, that mortgage market got a head start, with rates falling in December 2023 following the Fed meeting.

Mortgage rates are already in a better place than they were in Q4 of 2023. The average 30-year rate is around 6.5% again which is welcome news, especially since they were hovering close to 8% in October," says Bess Freedman, CEO at real estate company Brown Harris Stevens. 

To some, this movement means that mortgage rates don't have much more room to fall in 2024.

"I don't think rates will fall much more for most of the year. We had a steep decline at the end of last year, which will probably stay stable from this point forward," says Michael Gevurtz, CEO of Bluebird Lending.

Others, however, expect rates to decline further. Based on what the Fed has indicated, Freedman anticipates mortgage rates will drop again this year, "but nothing drastic — perhaps another 1% or so by the end of 2024," she adds.

Similarly, Jeff Lichtenstein, founder of Echo Fine Properties, expects mortgage rates to fall slightly this year as the Fed cuts rates. For 30-year fixed-rate mortgages, "the target that we see is approximately 5.5%," he says.

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When will mortgage rates fall in 2024?

If mortgage rates fall in 2024, as some predict, when might that occur? Part of the answer likely depends on what the Fed does in the coming months. While mortgage rates already started falling in December when the Fed took a softer stance, actual rate cuts could also lead to additional mortgage rate declines.

Lichtenstein projects that the Fed will make three quarter-point rate cuts in approximately the first half of 2024, with mortgage rates following similar stages of decreases, though he predicts around a 1% drop for mortgage rates.

Others, however, think mortgage rates will take longer to come down. "If rates fall, it won't be towards the end of the year," says Gevurtz. And even if rates do drop in 2024, it might not be a smooth downward slope.

"They've already started to come down, and I believe they will continue to go down, but not in a strictly linear fashion," says Freedman.

What factors are experts monitoring to determine where rates are heading?

In addition to looking toward the Fed to see what will happen with mortgage rates, experts are looking at other economic and financial indicators — some of which inform the Fed's decision — to try to get a better sense of where rates are heading.

"I'm watching economic data such as consumer spending, GDP growth, and inflation," says Gevrurtz.

If these numbers fall, meaning the economy slows down, that could result in the Fed cutting rates. However, strong GDP numbers and other economic factors could mean the Fed maintains or even raises rates, which ultimately would affect mortgage rates. "When the economy is in great shape, mortgage rates tend to stay high," says Freedman.

The bond market could also hold clues. "Mortgage rates are closely tied to bond yields, and they have been pretty unstable as of late. If they finally become more steady, mortgage rates will likely drop," says Freedman.

Real estate data could also hold clues. For example, Gevurtz notes that he looks at housing starts, or new construction. While there can be multiple factors that affect whether housing starts go up or down, more housing starts often coincide with builders expecting lower rates.

Demand for new mortgages can also be telling. Many would-be sellers don't want to give up their low mortgage rates in exchange for higher ones, while buyers have been on the sidelines due to cost and lack of supply, says Lichtenstein. Thus, there's been a lack of mortgage demand, which has already contributed to rates falling, he adds.

The bottom line

The Fed has indicated that it will cut rates in 2024, but the Fed does not directly set mortgage rates. Following the Fed's signals, mortgage rates already began falling at the end of 2023, so some think that there's not much more room for mortgage rates to fall in 2024. Others, however, think mortgage rates could fall around another 1%, meaning 30-year-fixed rate mortgages would hit roughly 5.5%.

So, some homebuyers might prefer the certainty of buying a home now, rather than waiting to see what happens with mortgage rates and prices. But if you're comfortable with your current situation, you might decide to wait, such as to see if supply improves while being able to lock in a more affordable mortgage rate. Learn more about your mortgage options here.

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