With the outlook for mortgage rates finally improving, the forecast for housing is looking better heading into the New Year.
Realtor.com economists predict that mortgage rates, which have declined over the past five weeks, will slide into the 6% territory in 2024. Fannie Mae expects mortgage rates to decline gradually over the next two years, reaching 6.9% for the 30-year mortgage by 2025. At the same time, First American economists noted that mortgage rates will hover in the 6.5% to 7.5% range.
That’s good news for the market that recently saw mortgage rates climb close to 8%, but the dip won’t be enough to entice existing homeowners with sub-5% mortgages back into the fray. This will continue to complicate supply availability and will remain a challenge as the market heads into the New Year, according to Realtor.com Chief Economist Danielle Hale.
“Our 2024 housing forecast reveals the green shoots we’ve been waiting to see in the housing market and should give buyers some optimism after a grueling few years,” Hale said. “Although mortgage rates are expected to ease throughout the course of the year, the continuation of high costs will mean that existing homeowners will continue to have a high threshold for deciding to move, but we will start to see some interest.
“Moves of necessity – for job changes, family situation changes, and downsizing to a more affordable market – are likely to drive home sales in 2024,” Hale continued. “Home buyers will continue to seek out markets where they feel like they get the most out of their dollar as they look for homes that better meet their needs.”
Homebuyers can find the best mortgage rate by shopping around and comparing your options. You can visit an online marketplace like Credible to compare rates, choose your loan term, and get preapproved with multiple lenders at once.
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Affordability set to improve slightly
With mortgage rates finally decreasing, affordability will likely return to the market, enticing some buyers back. Next year, the typical monthly purchase cost for the median-priced home listing is expected to be slightly less than $2,200 monthly, down from $2,240 this year, according to Realtor.com.
Existing supply availability could improve if mortgage rates drop faster than forecasted, according to Hale. However, the lack of existing housing supply has been tempered by the uptick in new home builds, which is expected to continue into 2024. Single-family home housing starts are forecasted to increase an estimated 0.4% in 2024, according to Realtor.com.
The latest figures on new home sales reported by the U.S. Department of Housing and Urban Development and the Census Bureau show that New home sales rose 17.7% year-over-year. In October 2023, new home sales were at a seasonally adjusted annual rate of 679,000. This is 5.6% below the revised September rate of 719,000 but is above the October 2022 estimate of 577,000.
“Homebuilding helps add more supply, but new homes are a small share of the total market, so it is difficult for homebuilding alone to solve the supply problem,” First American said. “Assuming six months’ supply is balanced and the average pace of sales of new and existing homes combined, 4.8 million SAAR so far in 2023, then an ideal supply of homes for sale is approximately 2.4 million homes. We are currently about a million homes short.”
If you’re looking to become a homeowner, you could still find the best mortgage rates by shopping around. Visit Credible to compare your options without affecting your credit score.
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Inflation is still a wild card
The forecast for housing is optimistic but hinges on continued moderation of inflation and that the Federal Reserve will begin easing its stance on interest rates. If inflation were to see a resurgence instead, home sales could slip lower instead of steadying, according to Hale.
“Anything that reverses that trend could raise long-term interest rates, and, in turn, nudge mortgage rates higher than expected,” Hale said. “That might discourage potential sellers from making a move and could keep potential buyers on the sidelines, putting a damper on home sales.”
The Fed has raised interest rates 11 times since March of last year, pushing the federal funds rate to a 22-year high of 5.25% to 5.5% to slow the economy and lower soaring inflation. In October, inflation rose 3.2%, down from 3.7% growth last month – evidence that rising prices are moderating. However, in a recent statement Fed Chair Jerome Powell said that it is too soon to say that the Fed is done with rate increases confidently.
“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said in a speech delivered to students at Spelman College in Atlanta. “We are prepared to tighten policy further if it becomes appropriate to do so.”
If you are looking to take advantage of the current mortgage rates by refinancing your mortgage loan or are ready to shop for the best rate on a loan, consider visiting an online marketplace like Credible to compare rates and get preapproved with multiple lenders at once.
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