Published by REALTOR.com | February 29, 2024
Experts predict what lower mortgage rates would mean for homebuyers and the housing market in general.
Homebuyers who are gearing up to shop the spring housing market might wonder whether the mortgage rate gods will smile in their favor.
They’re right to worry: In October, rates hit a 23-year high of 7.79% for a 30-year fixed loan, according to Freddie Mac.
Since then, rates have come down to 6.94% for the week ending Feb. 29. The Realtor.com® 2024 forecast predicts they might dip further to 6.5% by year’s end.
While homebuyers will be happy to hear this, the question remains: What will happen once mortgage rates fall? Does that mean buyers can look forward to lower housing payments? If so, how much lower are we talking about? And what else in the housing market might shift in ways that buyers might not see coming?
To find out, we asked experts what lower mortgage rates could mean for the housing market—in terms of home prices, the number of homes for sale, and beyond. Here’s what homebuyers can expect, and how they can prepare to make the most of this opportunity once lower rates hit.
Mortgage rates will likely decline gradually
Though mortgage rates have fallen since their peak in October 2023, they’re still way above the early 2022 lows of just over 3%.
“According to Freddie Mac, the average 30-year commitment rate is now below 7% for the first time since August 2023,” says Charlie Dougherty, director and senior economist at Wells Fargo. “The drop has occurred largely as a result of encouraging signs that inflation is easing and that the Federal Reserve will be cutting the federal funds target rate sooner rather than later.”
The Fed had been raising rates since early 2022 to bring down inflation. It signaled last year that it would be cutting rates this year in response to cooling inflation. As mortgage rates often move in the same direction as the Fed’s rates, when the Fed lowers its rates, mortgage rates are likely to fall.
But while this downward trend is moving things in the right direction, don’t expect rates to suddenly take a nosedive. This is going to be an incremental process with ups and downs.
“We expect mortgage rates will continue to gradually decline over the course of the next few years alongside easier monetary policy,” says Dougherty. “We look for the average 30-year mortgage rate to fall to 6% by the end of 2024 and 5.75% by the end of 2025.”
What that means is homebuyers shouldn’t expect a radical overnight change.
