What will happen to home prices if mortgage rates fall?

While the Federal Reserve wants to see inflation heading toward 2.0%, December 2023 brought an increase of 0.3%, moving the Consumer Price Index (CPI) up to 3.4%.

Still, many expect the federal funds rate to stay at 5.33% this month and decrease later this year. But what will that mean for the housing market overall - and prices, in general? If mortgage rates decrease in 2024, expert predictions on what will happen to home prices varies. Below, we'll detail a few potential scenarios.

If you're in the market to buy a home then start by exploring your mortgage rate options here now.

What will happen to home prices if mortgage rates fall?

We asked a few experts for their predictions on home prices if mortgage interest rates continue to decrease this year. Here's what they said:

Higher affordability will attract buyers 

When mortgage rates begin to drop, buying a home typically becomes more affordable. "Should rate cuts occur in 2024, homebuyers may qualify for larger loan amounts or find that their monthly payments are more manageable," says Neil Christiansen, branch manager and certified mortgage advisor with Churchill Mortgage. 

With increased affordability, however, comes increased demand. "As interest rates inevitably decline (it's a matter of when not if), we can expect demand to surge. The initial drop in interest rates will entice first-time buyers and those without low mortgage rates to reenter the market, creating an increase in demand before a corresponding increase in supply," says Jared Antin, managing director and licensed associate real estate broker at Elegran. 

And some say that a demand increase has already begun due to a recent drop in mortgage rates. "Open houses hosted by Realtors were relatively mundane during the last quarter of 2023; however, they are back to being full and frequently visited," says Christopher M. Naghibi, Esq., executive vice president and chief operating officer at First Foundation Bank. "The slight dip in mortgage rates has made the worst housing market for affordability since the early 1980s slightly less unaffordable."

If you want to act before the competition among buyers increases then it helps to know your options. See what mortgage rate you could qualify for here now.

Rising demand will likely drive up home prices

The experts we spoke with agree that a drop in interest rates will likely drive up demand which, in turn, will drive up home prices. 

"The imbalance, with more demand than supply, will lead to further price increases. However, some of the impact of these price increases will be offset by lower borrowing costs resulting from the reduced interest rates," says Antin. 

"The anticipation of interest rate cuts is already driving increased demand from buyers," adds Whitney Dutton, the residential sales director and advisor at Native Realty in South Florida. "In one week this month, we listed three homes, and all have received multiple offers - two of them are now being sold over list price."

And in a market where supply is already down and causing elevated prices, rate cuts could worsen the problem. "Approximately two million household formations are being created each year vs. only one million new home completions," says Christiansen, "This lopsided balance of demand and supply could reignite multiple bidding wars, appraisal gaps, increased offer prices…etc."

Learn more about buying a home in today's market here.

So is 2024 a good year to buy a home?

If you plan on keeping a home long-term and can afford it, 2024 may be a good time to buy. 

"The overwhelming majority of Americans derive the bulk of their net worth from the equity appreciation in their homes. Buying a home is never bad if you need the utility that comes with it and have the cash flow to do so reasonably," says Naghibi. "Whether values go up or down in the near term is irrelevant unless you need or have to sell."

But you may want to take action sooner rather than later. "Looking ahead to 2024, it appears to be an opportune time for homebuyers to reenter the market," Antin says. "Prospective buyers should consider acting now rather than wait for interest rates to decrease."