The latest mortgage rate predictions for 2024 suggest that home loan interest rates will decline further over the coming months, partly due to Federal Reserve policy changes.
Here’s the short version. After peaking at 7.79% back in October, the average rate for a 30-year fixed mortgage loan declined steadily to end the year around 6.95%. Several economists and analysts have predicted that rates could continue falling throughout 2024 as well.
This is great news for home buyers, and for two reasons:
- Lower mortgage rates can improve affordability and make it easier for buyers to purchase a home. That much is obvious.
- But this trend could also increase housing market inventory in 2024, by reducing the so-called mortgage rate lock-in effect.
Let’s take a closer look at these mortgage rate forecasts and predictions for 2024, in order to understand how they might affect home buyers in the months ahead.
Mortgage Rates Expected to Decline in 2024
In late October of 2023, the average rate for a 30-year fixed mortgage loan rose to an annual high of 7.79%. That was the highest average in more than 20 years, and it had a noticeable cooling effect on the U.S. real estate market.
Fortunately for home buyers, mortgage rates didn’t hover near the 8% threshold for very long. They declined steadily through November and December, causing an uptick in home loan applications nationwide. (See the “trends” section below for more details.)
That covers the recent past. But what about the future?
The latest mortgage rate predictions for 2024 suggest that we could see a continuation of this downward trend over the coming months. That could have a stimulating effect on the real estate market.
Forecast #1: Mortgage Bankers Association
In December of 2023, the Mortgage Bankers Association (MBA) made a prediction that 30-year mortgage rates would average 7% during the first quarter of 2024. That would be a slight decline from where they were at the end of 2023. They also predicted that home loan rates would drop toward 6% by the end of 2024.
Here are their quarterly forecasts regarding the average rate for a 30-year fixed mortgage:
Q1: 7.0% | Q2: 6.6% | Q3: 6.3% | Q4: 6.1%
Granted, this is just a forecast—not a guarantee of future mortgage rates. No one can make such a prediction with complete accuracy. But their projections do suggest that borrowers could see lower mortgage rates in 2024 compared to the second half of last year.
Forecast #2: Realtor.com
Economists with Realtor.com also predicted we would see lower mortgage rates in 2024 (on average), compared to where we are now.
In November of 2023, the Realtor.com research team published a “2024 Housing Forecast” that also included their long-range predictions for home loan interest rates next year. They believe that a slight dip in home prices, combined with overall lower mortgage rates, could improve affordability for buyers in the coming months.
Here are their mortgage predictions for 2024:
“Average mortgage rates of 6.8%, with rates edging down over the year to reach 6.5% by the end of the year.”
The group also predicted that home prices in the U.S. would decline by decline by -1.7% during 2024.
These and similar mortgage rate forecasts for 2024 offer a ray of light for home buyers who’ve been hit with the double-whammy of higher home prices and interest rates over the past year. This kind of trend would improve affordability within the housing market, at a time when it’s much needed.
Fed Policy Changes Playing a Role
As we’ve seen, 2024 mortgage rate predictions suggest that borrowing costs could come down over the coming months. But why? What’s influencing the rate drops of the past few weeks and fueling the forecasts for continued declines?
As usual, this trend results from a combination of factors including everything from economic uncertainty to inflation (and beyond).
But the Federal Reserve plays an important role here as well. After steadily increasing interest rates over the past couple of years to combat inflation, the Fed recently decided to hold rates at their current level.
They also said they might be willing to make several rate cuts during 2024 if they feel that inflation is under control. This is one of the primary factors influencing the mortgage rate predictions for 2024, particularly those that foresee a gradual decline occurring next year.
The Federal Reserve does not control mortgage rates or other consumer borrowing costs directly. When people refer to “Fed rate cuts,” they are talking about the federal funds rate that banks use when loaning money to one another overnight.
But the Fed’s policies do have an indirect influence on home loan interest rates. So their actions can “trickle down” into the housing market and affect home buyers who need to obtain financing from a lender.
Overview of Rate Trends Past and Present
In closing, let’s shift from future mortgage rate predictions to examine current and past trends. And what better way to do that than with a visual aid?
The graph below shows the average rate for a 30-year fixed mortgage loan, America’s most popular type of home loan, over the past three years. And it tells a pretty dramatic story.
The first thing you’ll notice is how much mortgage rates have risen since 2021, when they were hovering around 3% on average. (Those where the days!) Home loan interest rates more than doubled during 2022, a trend that sent a chill through the U.S. real estate market.
In late October of 2023, mortgage rates hit a 20-year high of 7.79%.
But notice what happens after that, over on the far right side of this graph. When this article was last updated, in mid-December, mortgage rates had been trending downward for eight weeks in a row.
Here is a zoomed-in version of the previous graph that only shows 2023. You’ll notice the late-October peak mentioned earlier, followed by a series of week-to-week mortgage rate declines.
This latter trend has already brought more home buyers into the real estate market. Recent reports from the Mortgage Bankers Association have shown a measurable increase in the number of home loan applications nationwide.
Many mortgage rate predictions for 2024 (including the two cited previously) have suggested that this downward trend could continue throughout the year. Such a trend would greatly improve the affordability situation for home buyers across the United States.
Disclaimer: Rate forecasts were provided by third parties not associated with the publisher. The Home Buying Institute makes no claims about future economic or housing related trends.
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author