If you’ve been sitting on the housing market sidelines because of sky-high mortgage rates, there’s good and bad news heading into 2024. The good? Mortgage rates are expected to drop in the new year. The bad? They probably won’t drop as much as you’d like.
“The pandemic was too hot; 2023 was too cold,” says Odeta Kushi, deputy chief economist at First American Financial Corporation, a title insurance and settlement services provider. “2024 won’t be just right, but it will be heading in a normalizing direction.”
Mortgage rates climbed for most of 2023, reaching nearly 8%—a level not seen in two decades. Though a far cry from the double-digit highs of the 1970 and 80s, for hopeful buyers, those rates crushed affordability. And for would-be sellers, they had a lock-in effect. Homeowners who might have otherwise sold instead stayed put not wanting to lose existing—much-lower—interest rates.
Keeping with many other housing economists, Kushi expects mortgage rates to decline in 2024—but only a modest amount. Should those predictions ring true, the question is whether the drop will be enough to shift housing affordability in the right direction.
How far could mortgage rates drop in 2024?
The consensus among industry professionals is that mortgage rates will gradually decline across 2024. Here’s where experts are predicting mortgage rates will land by the end of 2024:
Source
Projected 30-year mortgage rate (by end of 2024)
Mortgage Bankers Association
6.1%
Fannie Mae
6.5%
Realtor.com
6.5%
Redfin
6.6%
National Association of Realtors
6 to 7%
At the close of 2023, the average rate on a 30-year fixed-rate mortgage was 6.61%, according to Freddie Mac. While that’s about average historically—and down more than a full percentage point since rates peaked at 7.79% in October—such high rates were unthinkable just two-years ago.
Back then, the Federal Reserve was holding short-term interest rates near zero to spur the pandemic-battered economy, and mortgage lenders were offering rates below 3%. This pushed up demand for mortgages from home buyers, as well as from homeowners looking to refinance existing loans. Once the Fed started raising rates to fight inflation in March 2022, though, mortgage lenders reversed course. The result was steadily rising home-financing costs, slowing home sales and essentially nonexistent refinance demand.
The year ahead is poised to be another turning point in the mortgage world. With inflation seemingly under control, the Fed has signaled it could begin cutting interest rates in 2024, likely around midyear. While the Fed doesn’t directly determine mortgage rates, it’s likely that lenders will again follow the Fed’s lead. “Our modeling suggests a gradual, steady decline,” says Danielle Hale, chief economist at Realtor.com. (News Corp, parent of The Wall Street Journal, operates Realtor.com.)
But there are no guarantees. “The primary factor for mortgage rates is ongoing improvement in inflation,” Hale says. “If we don’t see that progress on a sustained basis, we would be looking at a very different, higher interest rate environment.”
If inflation starts rising again, rates may stay higher for longer. On the other hand, if inflation falls below the Fed’s 2% target or the economy shows signs of distress, the Fed may move to lower rates sooner than anticipated.
“After a couple of years of exceedingly low rates, we may need to redefine what a normal market is supposed to look like,” says Miki Adams, president of CBC Mortgage Agency, a mortgage lender and down payment assistance provider in South Jordan, Utah.
What lower mortgage rates could mean for home buyers
A fall in mortgage rates is obviously good news for hopeful home buyers. But will those lower rates be a game changer? Likely not for most consumers. Here’s what we can expect falling mortgage rates to look like on the ground.
Affordability will improve—a bit
Lower rates will make mortgage payments lower, but buyers shouldn’t expect any drastic improvements in affordability. On a $500,000 loan, for example, a 7% rate would mean a monthly mortgage payment of just over $3,300. At Realtor.com’s projected year-end 6.5% rate, that payment would drop to $3,160—a difference of only $140.
If rates fall as far as MBA’s predictions—6.1% and the lowest among industry forecasts—the savings could be more notable. In that same scenario, the savings would be about $270 a month.
There could be more homes for sale—and slower price growth
The high mortgage rates of 2023 haven’t just stymied buyers. They’ve also kept existing homeowners stuck in place—80% of whom have current mortgage rates under 5%.
There’s hope that lower rates in 2024 could spur some of these homeowners to enter the market, thereby increasing listings and putting downward pressure on prices. But again, experts say the impact will likely be minimal (at least from a national perspective).
“Certainly, rates dropping will help to unlock some homeowners, especially those sitting on a ton of equity,” Kushi says. “But it won’t be sufficient to unlock the majority of existing homeowners.”
Fannie Mae currently projects a 4.1% increase in home prices by the end of next year (down from 5.7% price growth this year). In some competitive housing markets, though, the impact of more listings could be felt more significantly. In Dallas, for instance, Realtor.com is projecting an 8% fall in home prices next year; over 5% in San Francisco.
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Multiple headwinds kept buyers and sellers on the sidelines of the housing market this year.
But that could change as interest rates fall and builders keep adding inventory.
These are Wall Street’s top predictions for where the US housing market is headed in 2024.
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Rising prices and steep borrowing costs in the US housing market kept homebuyers in a year-long limbo, with a national property shortage adding to headwinds in the sector.
While home prices dropped sharply through 2022, they rallied for nine-straight months beginning in January, recently hitting fresh all-time highs. Meanwhile, as the Federal Reserve raised borrowing costs, mortgage rates jumped to levels not seen sine the mid-2000s.
Finally though, conditions appear poised to shift, especially given mounting bets that the Fed will loosen monetary policy in 2024.
From supply to price growth, here are top experts’ outlooks for 2024 housing market.
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Realtor.com: A “bit of a break”
As the Fed turns dovish, the 30-year fixed mortgage rate will average 6.8% next year, Realtor.com predicted in early December. In the last week of the month, the rate slid to 6.61%.
This could have the effect of slowing demand as homebuyers feel less pressure to race against higher borrowing costs. The listing agency expects prices to dip by 1.7%, having risen 3% in 2023.
“It will be a bit of a break after what have been pretty relentless home price increases,” Chief Economist Danielle Hale said, adding: “Some of the pressure and sense of urgency will start to let up.”
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However, the volume of existing homes for sale will tumble 14%, as the mortgage rates at the level the firm predicts will still be more expensive than what 85% of current borrowers are paying.
Goldman Sachs: Inventory picks up
Goldman Sachs estimates existing sales will only dip slightly in 2024, before rebounding to 4.24 million the year after. Meanwhile, new home sales will climb from this year’s 680,000 to 723,000 in 2024.
That’s as housing starts will inch higher, climbing from 1.39 million to 1.335 million in 2024. New home construction has substantially increased this year, as homebuilders jumped on the lack of housing.
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The bank expects muted price growth next year.
Redfin: Prices will fall 1%
The 30-year mortgage rate will average 6.6% by the end of 2024, leading to a 1% drop in home prices, the real estate firm expects.
“Home prices will still be out of reach for many Americans, but any break in the affordability crisis is a welcome development nonetheless,” Chief Economist Daryl Fairweather said.
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Meanwhile, home sales will jump 5%, reaching 4.3 million. Still, Redfin says high costs will push rent demand higher, while there could be an uptick in priced-out Americans moving in with their parents.
Zillow: Prices will flatten
Buyers shouldn’t expect home prices to fall much, but the rate of growth will level off and allow Americans’ incomes to catch up, the real estate platform predicted in a late-November note.
Mortgage rates will probably hold at current levels in the coming months, as the persistent slowdown in inflation makes an uptick in rates unlikely.
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“Taken together, the cost of buying a home looks to be on track to level off next year, with the possibility of costs falling if mortgage rates do,” Zillow researchers said.
Fannie Mae: Price growth will lose steam
Mortgage rates will average 6.7% in 2024, not far off levels seen this summer, the government-sponsored mortgage finance agency predicted.
Total home sales will jump to 4.8 million, fueled by a gradual recovery in existing home sales, Fannie Mae said. A modest economic downturn will cause a shallow decline in new home sales, though the contraction won’t diminish construction volumes in the long run.
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The agency expects prices to continue appreciating, albeit at a slower pace. Citing an October survey, it forecasts 2.4% price growth next year.
If you spent your teenage years waiting anxiously for one of your siblings to get out of the shower, the idea of selling your spacious, multi-bathroom home and moving into a smaller house or condo may feel like a reversal of fortune.
Yet for many retirees, downsizing makes financial and practical sense. Younger baby boomers — those currently ranging in age from 57 to 66 — made up 17% of recent home buyers, while older boomers — ages 67 to 75 — accounted for 12%, according to a 2022 report from the National Association of Realtors Research Group. Boomers’ primary reasons for buying a home were to be closer to friends and family, as well as a desire to move into a smaller home, the report said. Both younger and older boomers were more likely than others to purchase a home in a small town, and younger boomers were the most likely to buy in a rural area.
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For retirees Fred and Shelby Bivins, selling their home in Green Valley, Ariz., will enable them to realize their dream of traveling in retirement. The Bivinses have put their 2,050-square-foot Arizona home on the market and plan to relocate to their 1,600-square-foot summer condo in Fish Creek, Wis., a small community about 50 miles from Green Bay. They plan to live in Wisconsin in the spring and summer and spend the winter months in a short-term rental in Arizona, where they have family.
Fred, 65, says the decision to downsize was precipitated by a two-month stay in Portugal last year, one of several countries they hope to visit while they’re still healthy enough to travel. “We’ve had Australia and New Zealand on our list for many years, even when we were working,” says Shelby, 68. The Bivinses are also considering a return visit to Portugal. Eliminating the cost of maintaining their Arizona home will free up funds for those trips.
With help from Chris Troseth, a certified financial planner based in Plano, Texas, the Bivinses plan to invest the proceeds from the sale of their home in a low-risk portfolio. Once they’re done traveling and are ready to settle down, they intend to use that money to buy a smaller home in Arizona. “Selling their primary home will generate significant funds that can be reinvested to support their lifestyle now and in the future,” Troseth says. “Downsizing for this couple will be a positive on all fronts.”
Challenges for downsizers
For all of its appeal, downsizing in today’s market is more complicated than it was in the past. With 30-year fixed interest rates on mortgages recently approaching 8%, many younger homeowners who might otherwise upgrade to a larger home are unwilling to sell, particularly if it means giving up a mortgage with a fixed rate of 3% or less. More than 80% of consumers surveyed in September by housing finance giant Fannie Mae said they believe this is a bad time to buy a home and cited mortgage rates as the top reason for their pessimism. “This indicates to us that many homeowners are probably not eager to give up their ‘locked-in’ lower mortgage rates anytime soon,” Fannie Mae said in a statement. As a result, buyers are competing for limited stock of smaller homes, says Hannah Jones, senior economic research analyst for Realtor.com.
Here, though, many retirees have an advantage, Jones says. Rising rates have priced many younger buyers out of the market and made it more difficult for others to obtain approval for a loan. That’s not an issue for retirees who can use proceeds from the sale of their primary home to make an all-cash offer, which is often more attractive to sellers.
Retirees also have the ability to cast a wider net than younger buyers, whose choice of homes is often dictated by their jobs or a desire to live in a well-rated school district. While the U.S. median home price has soared more than 40% since the beginning of the pandemic, prices have risen more slowly in parts of the Northeast and Midwest, Jones says. “We have seen the popularity of Midwest markets grow over the last few months because out of all of the regions, the Midwest tends to be the most affordable,” she says. “You can still find affordable homes in areas that offer a lot of amenities.”
Meanwhile, selling your home may be somewhat more challenging than it was during the height of the pandemic, when potential buyers made offers on homes that weren’t even on the market. The Mortgage Bankers Association reported in October that mortgage purchase applications slowed to the lowest level since 1995, as the rapid rise in mortgage rates has pushed many potential buyers out of the market. Sales of previously owned single-family homes fell a seasonably adjusted 2% in September from August and were down 15.4% from a year earlier, according to the National Association of Realtors. “As has been the case throughout this year, limited inventory and low housing affordability continue to hamper home sales,” NAR chief economist Lawrence Yun said in a statement.
However, because of tight inventories, there’s still demand for homes of all sizes, Jones says, so if your home is well maintained and move-in ready, you shouldn’t have difficulty selling it. “The market isn’t as red-hot as it was during the pandemic, but there’s still a lot to be gained by selling now,” she says.
Other costs and considerations
If you live in an area where real estate values have soared, moving to a less expensive part of the country may seem like a logical way to lower your costs in retirement. While the median home price in the U.S. was $394,300 in September, there’s wide variation in individual markets, from $1.5 million in Santa Clara, Calif., to $237,000 in Davenport, Iowa. But before you up and move to a lower-cost locale, make sure you take inventory of your short- and long-term expenses, which could be higher than you expect.
Selling your current home, even at a significant profit, means you will incur costs, including those to update, repair and stage it, as well as a real estate agent’s commission (typically 5% to 6% of the sale price). In addition, ongoing costs for your new home will include homeowners insurance, property taxes, state and local taxes, and homeowners association or condo fees.
Nicholas Bunio, a certified financial planner in Berwyn, Pa., says one of his retired clients moved to Florida and purchased a home that was $100,000 less expensive than her home in New Jersey. Florida is also one of nine states without income tax, which makes it attractive to retirees looking to relocate. Once Bunio’s client got there, however, she discovered that she needed to spend $50,000 to install hurricane-proof windows. Worse, the only home-owners insurance she could find was through Citizens Property Insurance, the state-sponsored insurer of last resort, and she’ll pay about $8,000 a year for coverage. Her property taxes were higher than she expected, too. When it comes to lowering your cost of living after you downsize, “it’s not as simple as buying a cheaper house,” Bunio says
Before moving across the country, or even across the state, you should also research the availability of medical care. “Oftentimes, those considerations are secondary to things like proximity to family or leisure activities,” says John McGlothlin, a CFP in Austin, Texas. McGlothlin says one of his clients moved to a less expensive rural area that’s nowhere near a sizable medical facility. Although that’s not a problem now, he says, it could become a problem when they’re older.
If you use original Medicare, you won’t lose coverage if you move to another state. But if you’re enrolled in Medicare Advantage, which is offered by private insurers as an alternative to original Medicare, you may have to switch plans to avoid losing coverage. To research the availability of doctors, hospitals and nursing homes in a particular zip code, go to www.medicare.gov/care-compare.
At a time when many seniors suffer from loneliness and isolation, a sense of community matters, too. Bunio recounts the experience of a client who considered moving from Philadelphia to Phoenix after her daughter accepted a job there. The cost of living in Phoenix is lower, but the client changed her mind after visiting her daughter for a few months. “She has no friends in Phoenix,” he says. “She’s going on 61 and doesn’t want to restart life and make brand-new connections all over again.”
Time is on your side
Unlike younger home buyers, who may be under pressure to buy a place before starting a new job or enrolling their kids in school, downsizers usually have plenty of time to consider their options and research potential downsizing destinations. Once you’ve settled on a community, consider renting for a few months to get a feel for the area and a better idea of how much it will cost to live there. Bunio says some of his clients who are behind on saving for retirement or have high health care costs have sold their homes, invested the proceeds and become permanent renters. This strategy frees them from property taxes, homeowners insurance, homeowners association fees and other expenses associated with homeownership
The boom in housing values has boosted rental costs, as the shortage of affordable housing increased demand for rental properties. But thanks to the construction of new rental properties in several markets, the market has softened in recent months, according to Zumper, an online marketplace for renters and landlords. A Zumper survey conducted in October found that the median rent for a one-bedroom apartment fell 0.4% from September, the most significant monthly decline this year.
In 75 of the 100 cities Zumper surveyed, the median rent for a one-bedroom apartment was flat or down from the previous month. (For more on the advantages of renting in retirement, see “8 Great Places to Retire—for Renters,” Aug.)
Aging in place
Even if you opt to age in place, you can tap your home equity by taking out a home equity line of credit, a home equity loan or a reverse mortgage. At a time when interest rates on home equity lines of credit and loans average around 9%, a reverse mortgage may be a more appealing option for retirees. With a reverse mortgage, you can convert your home equity into a lump sum, monthly payments or a line of credit. You don’t have to make principal or interest payments on the loan for as long as you remain in the home.
To be eligible for a government-insured home equity conversion mortgage (HECM), you must be at least 62 years old and have at least 50% equity in your home, and the home must be your primary residence. The maximum payout for which you’ll qualify depends on your age (the older you are, the more you’ll be eligible to borrow), interest rates and the appraised value of your home. In 2024, the maximum you could borrow was $1,149,825.
There’s no restriction on how homeowners must spend funds from a reverse mortgage, so you can use the money for a variety of purposes, including making your home more accessible, generating additional retirement income or paying for long-term care. You can estimate the value of a reverse mortgage on your home at www.reversemortgage.org/about/reverse-mortgage-calculator.
Up-front costs for a reverse mortgage are high, including up to $6,000 in fees to the lender, 2% of the mortgage amount for mortgage insurance, and other fees. You can roll these costs into the loan, but that will reduce your proceeds. For that reason, if you’re considering a move within the next five years, it’s usually not a good idea to take out a reverse mortgage.
Another drawback: When interest rates rise, the amount of money available from a reverse mortgage declines. Unless you need the money now, it may make sense to postpone taking out a reverse mortgage until the Federal Reserve cuts short-term interest rates, which is unlikely to happen until late 2024 (unless the economy falls into recession before that). Even if interest rates decline, they aren’t expected to return to the rock-bottom levels seen over the past 15 years, according to a forecast by The Kiplinger Letter. And with inflation still a concern, big rate cuts such as those seen in response to recessions and financial crises over the past two decades are unlikely.
Note: This item first appeared in Kiplinger’s Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
From high prices to low inventory, potential home buyers know it’s gnarly out there. But if you’re ready for homeownership, the long-term benefit of buying often outweighs the pain of toughing out the search — even these days.
Think of it like your 5 a.m. spin class: You know it’s good for you, even if it takes grit (and leaves you feeling sore).
With some market savvy, you can make the most of today’s challenging conditions. Here’s your game plan for buying a house in 2024.
The challenge: Stubbornly high mortgage rates squeeze shoppers’ buying power
Buyers have been at the mercy of mortgage rates’ meteoric rise, holding on as the average 30-year fixed rate climbed from 3% to nearly 7% in 2022. In October 2023, rates topped 8% for the first time since 2000 — a surprise even many top economists didn’t predict. But throughout November, they dropped slightly, landing at an average of 7.03% for the week ending Dec. 7.
Higher interest rates make it more expensive to get a mortgage. To put that in perspective: Let’s say you can afford $1,800 per month in principal and interest. At a 3% interest rate, you could afford to borrow $426,900. But at a 7% interest rate, you could afford to borrow only $270,600. Why? Because you’d pay a full $156,300 more in mortgage interest with the higher rate.
For now, economic signals suggest more positive news for buyers in 2024. Dan Moralez, regional vice president at Dart Bank in Holland, Michigan, points to a cooling economy and the pause on Fed interest rate hikes. “All of that stuff really lends itself to mortgage rates getting better and the cost to borrow getting cheaper,” Moralez says.
Let’s set realistic expectations, though: No experts are forecasting a return to 3% rates anytime soon. More likely, we’ll see the 30-year mortgage rate decline modestly below 7% in the second half of 2024, according to forecasts from the Mortgage Bankers Association and the National Association of Realtors.
Your strategy: Do your research to find the best deal
Don’t let high rates keep you on the sidelines for too long. When rates go down, competition goes up — another reason there’s no time like the present to start house hunting.
And whichever way rates move in 2024, you’ll save money if you shop around. Aim to get an estimate from at least three mortgage lenders. The Consumer Financial Protection Bureau estimates borrowers can save $100 per month (or more) this way. And look at the annual percentage rate, or APR, to understand the total cost of the loan, which includes fees and other charges.
With buyers wincing at high rates, some lenders are advertising “buy now, refinance later” offers. Others are offering temporary buydowns, where the buyer’s effective monthly payment is reduced for a year (or a few). Before signing up for a discount, ask questions to understand how it works. Each option could potentially save money, but Moralez says it could also be “smoke and mirrors” if the flashy deal is offset by higher fees.
“It’s one of those things where I tell folks, ‘There’s no free lunch, OK?’” he says. “You know, somebody is paying for it somewhere.”
The challenge: Low inventory means slim pickings for buyers
The rate of existing home sales is the lowest it’s been in 13 years, according to October 2023 data from the National Association of Realtors (NAR). The current market has a 3.6-month supply of unsold home inventory, meaning it would take listed homes 3.6 months to sell at the current sales pace. A balanced market has a supply of five to six months.
So why aren’t sellers selling? Octavius Smiley-Humphries, a real estate agent with The Smiley Group in Apex, North Carolina, points to higher prices and the “rate lock-in effect.”
“At this point, you’d be paying either double your mortgage for the same price house that you have, or a similar mortgage if you’re trying to even downsize,” he says. “So I think the more intelligent buyer is kind of thinking, ‘What’s the benefit?’ unless you absolutely have to move.”
Some hope: Single-family construction permits are on the rise, with more issued in October 2023 than at any other time in the past year, according to the Federal Reserve Bank of St. Louis, so we’ll see more new houses boosting supply soon. And despite larger shortages, 92% of markets have seen modest inventory growth over the last three months, according to a November 2023 report from ICE Mortgage Technology.
Your strategy: Cast a wider net
You can’t control who puts their house on the market. So focus on what you can change: your expectations.
Let go of the fantasy of finding the perfect home when a “good enough” home can get your foot in the door sooner. That’s especially true for first-time home buyers who are eager to build equity.
“Real estate has always been a really solid investment,” Smiley-Humphries says. “So what you essentially lose by waiting six months or a year could mean tens of thousands of dollars.”
For now, maybe you expand your search to include condos or townhouses. Maybe you settle for fewer bathrooms or a dated interior. Keep your chin up — even if you have to tolerate less square footage or weird linoleum floors for a while, you’ll have equity to remodel or sell in a few years.
The challenge: High prices push affordability to the worst it’s been in almost 40 years
Housing is the least affordable it’s been since 1984, according to a November 2023 report from ICE Mortgage Technology. Why? Home prices are growing faster than income, and on top of that, higher mortgage rates increase the cost of borrowing.
In October 2023, the median existing home sales price climbed to a record high of $391,800, according to the NAR. To buy a median-priced home at that time, buyers would need to shell out $2,567 per month just in principal in interest, ICE estimates. That’s another all-time high since ICE has been keeping track — and nearly double the median monthly payment of $1,327 just two years ago.
Until supply catches up to demand, prices are unlikely to fall. Realtor.com estimates prices will fall less than 2% next year. That’s another reason to jump in now: A big drop in prices could trigger more competition.
Your strategy: Make a budget and stick to it
If you’re Zillow-stalking houses you can’t afford, stop. Instead, channel that energy toward your plan to shop for a house in real life — starting with setting a realistic budget.
First, talk to a financial advisor or use an online calculator to see how much house you can afford. Understand how mortgage lenders will determine your eligibility, including analyzing your credit score, cash savings and monthly debt payments.
Next, find a buyer’s agent who knows how far your budget can go in your local market. An experienced agent can advocate for you and help you snag a good deal.
One bargain-hunting tip: Start searching in the winter, suggests Ellie Kowalchik, a real estate agent who leads the Move2Team with Keller Williams Pinnacle Group in Cincinnati, Ohio.
“There are good houses on the market now that aren’t getting the attention they may get in the spring with more buyer activity,” she says. “Less competition is good for buyers.”
The challenge: Multiple offers are common, and first-time buyers have less cash
More than one in four homes are still selling for above list price, according to October 2023 data from the NAR: 28% of homes sold for above list price that month. Homes for sale spent a median of 23 days on the market and saw an average of 2.5 offers, a sign that competition remains tough.
“Limited housing inventory is significantly preventing housing demand from fully being satisfied,” Lawrence Yun, NAR chief economist, said in a press release. “Multiple offers, of course, yield only one winner, with the rest left to continue their search.”
In general, first-time buyers come to the negotiating table with less cash than repeat buyers, reports the NAR. First-time buyers make a median down payment of 8%, while repeat buyers put down a median 19%.
And nearly one in three (29%) of sales were made in cash, reports the NAR, up slightly from 26% in 2022.
Your strategy: Use leverage where you have it
A good real estate agent can help you craft a strong offer, even if other buyers flash more cash.
Aziz Alhees, a real estate agent with Compass in Pasadena, California, has seen his share of wealthy investors making cash offers. He notes that they tend to bid below asking price since cash sales close faster. The promise of a quick closing is enough to get some sellers to turn down higher offers that ask for more time.
So Alhees competes on speed: With a mortgage preapproval and all other paperwork in hand, he prepares his buyers to close in 14 days.
“We’re not afraid of cash offers anymore,” he says.
On the flip side, if the sellers need more time to move out, a flexible closing timeline can sweeten some deals, too. But don’t waive the home inspection when you’re negotiating. It can be tempting, but you’re only hurting yourself if you later discover expensive problems.
The bottom line: Set realistic expectations
It’s fair to feel bummed out about high costs and low inventory. That’s especially true for first-time buyers who have been putting off their search, only to see the market remaining rough.
The solution: Think long term. Holding out for lower rates likely means you’ll face steeper prices and more competition. So if you’re determined to buy, find a place that suits your needs and budget as-is. Expecting perfection often means setting yourself up for disappointment.
“Sometimes I have clients that think they’re going to hit a home run the very first house they buy,” Moralez says. “And a lot of times I tell clients, well, sometimes it’s OK to be happy just getting on base.”
After two years of sharp declines, existing-home sales are poised for improvement in 2024. But first, this slice of the housing market must weather the rest of a rocky year in 2023, with existing-home sales expected to end up 18% lower than those of 2022, according to the National Association of REALTORS®. That puts these transactions on track for their worst year in more than a decade.
NAR Chief Economist Lawrence Yun joined other leading housing analysts Tuesday at NAR’s virtual Real Estate Forecast Summit to discuss sales projections heading into 2024—and the experts agreed that better days are ahead for the real estate market.
Mortgage rates likely have peaked and are now falling from their recent high of nearly 8%. NAR predicts the 30-year fixed-rate mortgage to average 6.3% in 2024; realtor.com® projects 6.5%. This likely will improve housing affordability and entice more home buyers to return to the market, Yun says. NAR’s data shows that rates near 6.6% enable the average American family to afford a median-priced home without devoting more than 30% of their income to housing, the threshold commonly used to measure affordability.
NAR is projecting that existing-home sales will rise 13.5% and new-home sales—which are up about 5% this year, defying market trends—could increase another 19% by the end of next year.
Markets to Watch in 2024
Some housing markets likely will experience higher sales upticks in 2024 than others. “Job growth will be a determinant for long-term housing demand,” Yun said.
NAR evaluated 100 of the largest U.S. metro areas to identify the markets with the largest pool of potential home buyers, the greatest likelihood for home price appreciation and more. The following markets have the most pent-up housing demand for 2024, according to NAR:
Danielle Hale, chief economist at realtor.com®, said at Tuesday’s summit that while she’s optimistic the housing market will improve in 2024, inflation is the issue that could derail optimistic real estate forecasts. If inflation doesn’t continue to improve, she said, it could raise long-term interest rates, which then could discourage more homeowners from selling and prolong the inventory bottlenecks in the market. Younger generations of home buyers may continue to be sidelined by higher housing costs and remain as renters. “That could have huge ramifications for the housing market,” Hale said. “The inflation data is very important to watch.”
Overall inflation has been easing, although “shelter inflation” continues to rise. The latest reading of the Consumer Price Index showed that inflation decreased to 3.1% in November. (The Federal Reserve’s target for the inflation rate is 2%.) Yun said an “oversupply” of new apartment units will hit many housing markets in the coming months, which could bring rental rates down and help better control inflation. Hopefully, he added, that will disincentivize the Fed to continue raising its short-term rates.
Regardless of inflation and mortgage rates, the 2024 housing market likely will remain challenging, particularly for first-time buyers who are unable to leverage the proceeds from a previous home sale, summit panelists noted. Plus, amid record low inventory, finding a home to buy will be a top hurdle. Homeowners remain reluctant to sell and give up the low mortgage rates they locked in two years ago. Further, homebuilders have underproduced for decades, leading to a shortage of 5 million housing units nationwide, according to NAR research.
However, current homeowners are in an envious position: With rapid home appreciation in recent years, owners will grow their nest egg in 2024. Even those in markets that are expecting slight dips next year will be able to weather the drop. Home price appreciation has jumped by about 5% over the past year alone. The typical homeowner has accumulated more than $100,000 in housing wealth over the past three years, NAR’s data shows. Plus, the wealth comparison between homeowners and renters continues to be significant: The typical homeowner has $396,200 in wealth versus $10,400 for renters, according to Federal Reserve data. “Over the long term, homeowners build wealth over time,” Yun said.
Federal Reserve left its key short-term interest rate unchanged again Wednesday, hinted that rate hikes are likely over and forecast three cuts next year amid falling inflation and a cooling economy.
That’s more rate cuts than many economists expected.
The decision leaves the Fed’s benchmark short-term rate at a 22-year high of 5.25% to 5.5% following a flurry of rate increases aimed at subduing the nation’s sharpest inflation spike in four decades. The central bank has now held its key rate steady for three straight meetings since July.
That provides another reprieve for consumers who have faced higher borrowing costs for credit cards, adjustable-rate mortgages and other loans as a result of the Fed’s moves. Yet Americans, especially seniors, are finally reaping healthy bank savings yields after years of paltry returns.
Best high-yield savings accounts of 2023
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Is a soft landing in sight? What the Fed funds rate and mortgage rates are hinting at
Will the Fed raise interest rates again?
The central bank didn’t rule out another rate increase as it downgraded its economic outlook for next year while lowering its inflation forecast. In a statement after a two-day meeting, it repeated that it would assess the economy and financial developments, among other factors, to determine “the extent of any additional (rate hikes) that may be appropriate to return inflation to 2% over time.”
Fed Chair Jerome Powell said at a news conference, noting the Fed’s key rate is “at or near its peak.”
while the Dow Jones Industrial Average closed at a record high after rising 1.4% following the Fed’s signals that it’s probably done lifting rates and is forecasting three cuts next year. The 10-year Treasury was down to about 4% from 4.21% on Tuesday.
Last month, Powell said high Treasury yields, if persistent, likely would constrain the economy and require fewer Fed rate increases,
In its statement Wednesday, however, the central bank didn’t acknowledge the recent decline in Treasury yields, suggesting yields are still relatively high and could spike again, crimping the economy.
“Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation,” the Fed said, repeating the language of its previous statement.
Is inflation really slowing down?
The Fed’s middle-ground approach may have been cemented Tuesday by a mixed report on the consumer price index. The good news was that overall inflation barely budged in November amid falling gasoline prices, pushing down annual price gains to 3.1% from 3.2%, still well above the Fed’s 2% goal.
The Federal Reserve System is the U.S.’s central bank.
When does the Fed meet again?
The first Federal Reserve meeting of the new year will be from Jan. 30 through 31.
Federal reserve calendar
Jan. 30-31
March 19-20
April 30- May 1
June 11-12
July 30-31
Sept. 17-18
Nov. 6-7
Dec. 17-18
The U.S. economy was strong in the third quarter as consumers continued to spend despite high interest rates and inflation.
The value of all services and products generated in the U.S., or GDP, rose at a seasonally adjusted 4.9% for the year in the months spanning July to September, according to the Commerce Department. That was more than twice the 2.1% increase in the previous quarter and the most aggressive pace of growth since the end of 2021 when the economy surged back from a recession sparked by the pandemic.
a recession over the next year, down from the 61% odds forecast in May.
Barclays predicted a loss of roughly 375,000 jobs by the middle of next year. But consumer spending remains robust despite high inflation and interest rates that are making credit card use and consumer loans more expensive. And that may help stave off a recession, says Barclays economist Jonathan Millar.
What does FOMC stand for?
The FOMC is the Federal Open Market Committee, the voting body responsible for setting interest rates. The 12-member committee includes seven members of the Board of Governors and five of the 12 Reserve Bank presidents.
What causes inflation?
Inflation can have many roots. Typically, it’s caused by “a macroeconomic excess of spending over the economy’s relative ability to produce goods and services,” said Josh Bivens, the director of research at the Economic Policy Institute, a left-leaning think tank based in Washington D.C.
That means more people are wanting items and services than there is adequate supply, leading producers to raise prices.
“If everyone in the economy, tomorrow, decided they weren’t going to save any money from their paychecks, and they’re just going to spend every last dollar out of the blue, they would all run to the stores and try to buy things,” Bivens said. “But, producers haven’t produced enough to accommodate that big surge of across-the-board spending. So, you would see prices bid up.”
Inflation can also happen when there are too few producers, or there aren’t enough employees to provide the coveted products and services, Bivens said.
Finally, economies also have some “built-in inflation” to help keep inflation in check. In the U.S., that target is 2%, meaning businesses can raise prices 2% annually year and that shouldn’t overburden consumers. That’s also the typical cost of living raise offered by employers.
Inflation meaning
Inflation is the term for a “generalized rise in prices,” according to Josh Bivens, head of research at the Economic Policy Institute, a left-leaning think tank based in Washington D.C.
Everything from food to rent can become costlier due to inflation. But it is the overall impact that determines what the inflation rate actually is.
“Inflation, though, really is meant to only refer to all goods and services, together, rising in price by some common amount,” Bivens said. The Federal Reserve’s inflation goal is 2%, which means businesses can hike prices by 2% a year and that shouldn’t cause consumers financial distress. Cost of living increases to workers’ pay are also expected to meet that target to ensure consumers can adequately deal with the rising costs of goods and services.
What is CPI?
In November, the Consumer Price Index (CPI) ‒ a measure of the average shift in prices for different products and services ‒ was 3.1%, down slightly from the month before.
Annual inflation is down dramatically from the 9.1% in June 2022 that marked a 40-year high but remains above the 2% target the Fed sees as the level that signals the rate of price increases is under control.
Why is CPI important?
The Federal Reserve watches two key aspects of the economy, price stability and maximum employment, and those are the main factors it takes into account for its interest rate decisions. The CPI is a primary measure the Fed looks at to help determine if prices are “stable.’’
What is the difference between CPI and core CPI?
Core prices don’t count the volatile costs of food and energy items, giving a more accurate window into longer-term trends.
Are wages going up in 2024?
If you’re deemed a top performer at a company that is offering raises, you’ve got a pretty good chance of getting a pay boost next year.
About 3 out of four business leaders told ResumeBuilder.com they intended to give raises. But half of those company executives said only 50% or less of their staff members would see a pay hike, and 82% of the raises would hinge on performance. For those who do manage to get the salary boost, 79% of employers said the pay hikes would be greater than those given in recent years.
Are U.S. Treasury yields rising?
Not recently.
The 10-year Treasury yield was above 5% in November when the Fed kept rates steady for the second consecutive month the first time it had left the key rate unchanged two months in a row in almost two years.
That led to mortgage rates spiking to almost 8% and pushed up other borrowing costs for consumers and businesses. Stocks meanwhile sank close to a recent low, leading Fed Chair Jerome Powell to say such financial pressures could achieve the same cooling effect on the economy as additional rate hikes.
But in the following weeks, 10-year Treasury yields dipped to 4.2% and stocks rebounded. That might make the Fed resist rate cuts in case the economy heats up and causes the broader dip in prices “to stall at an uncomfortably elevated level,” Barclays says.
Barclays and Goldman Sachs forecast that rate cuts won’t happen until the spring, and that there will be only two, to a range of 4.75% to 5%, with more cuts implemented in the next two years.
When will inflation go back to normal?
It may take a little while.
Inflation’s decline likely “won’t show much progress in coming months,” Barclays wrote in a research note.
Overall price hikes have eased significantly since peaking at 9.1% in June 2022, a four-decade high. And in October, broader inflation as well as core prices experienced a dip, leading to a lower 10-year Treasury yield.
But core prices, which exclude the volatile costs of food and energy, will probably rise 0.3% each of the next three months, Goldman Sachs says. Used cars and furniture have been getting cheaper as the supply-chain shortages of the pandemic end. Meanwhile, health care, auto repairs, car insurance and rent continue to get more expensive, as employers pay higher wages to attract workers amid a labor shortage lingering from the global health crisis.
What is core inflation right now?
Core prices, which leave out the more volatile costs of food and energy, bumped up 0.3% in November, slightly more than the 0.2% uptick seen the previous month. That kept the yearly increase at 4%, the lowest rate since September 2021.
New inflation tax brackets
Inflation may also impact the amount of taxes you have to pay.
The Internal Revenue Service said in its annual inflation adjustments report that there will be a 5.4% bump in income thresholds to reach each new level in next year’s tax season.
In 2024, the lowest rate of 10% will apply to individuals with taxable income up to $11,600 and joint filers up to $23,200. The top rate of 37% will apply to individuals earning over $609,350, and married couples filing jointly who make at least $731,200 a year.
The IRS makes these adjustments annually, using a formula based on the consumer price index to account for inflation and stave off “bracket creep,” which happens when inflation shifts taxpayers into a higher bracket though they’re not seeing any real rise in pay or purchasing power.
The 2024/25 increase is less than last year’s 7% increase, but much more than recent years when inflation was below the current 3.1% inflation rate.
Will Social Security get a raise because of inflation?
Yes, but it will be a lot less than what recipients received in 2023.
The cost-of-living adjustment, or COLA, to Social Security benefits will be 3.2% next year. That’s roughly one-third of the 8.7% increase given in 2023, which marked a forty-year high.
The 2024 COLA hike is above the average 2.6% raise recipients have received over the past two decades, but seniors remain concerned about being able to pay their expenses as well as the increasing possibility Social Security benefits will be reduced in coming years, according to a retirement survey of 2,258 people by The Senior Citizens League, a nonprofit seniors group.
How does raising rates lower inflation?
The federal funds rate is what banks pay each other to borrow overnight. If that rate increases, banks usually pass along that extra cost, meaning it becomes more expensive for businesses and consumers to borrow as rates rise on credit cards, adjustable rate mortgages and other loans. That’s why the funds rate is the key mechanism used by the Federal Reserve to calm inflation.
Simply put, companies and consumers don’t borrow as much when loans cost them more, and that means an overheated economy can cool and inflation may dip.
Will credit card interest rates continue to rise this holiday season?
The Fed’s string of rate hikes, aimed at easing the highest inflation in four decades, are a big reason credit card interest rates have reached record highs just in time for the holiday season.
Some retail credit cards now charge more than 33% interest, topping a 30% threshold that stores and banks were previously able to bypass but seldom did – until now.
“They can charge that much,” said Chi Chi Wu, a senior attorney at the nonprofit National Consumer Law Center. “Credit cards can actually charge whatever they want. It’s a little-known fact.”
The domino effect of a high benchmark rate and soaring credit card interest could put many Americans in financial straits this holiday season.
Though some consumers are paring back to deal with high prices, rising debt and shrinking savings, the average shopper expects to spend $1,652 this year on holiday purchases, according to the consultancy Deloitte, more than was typically spent in the last three years.
A lot of the buying will be done with credit cards. In an October poll of 1,036 shoppers by CardRates.com, nearly 4 in 10 respondents said they intend to have holiday credit card debt in the new year.
The nation’s collective credit card debt was $1.08 trillion, at the end of September, a record high. And the average interest rate was 21%, the highest ever documented by the Federal Reserve.
Savings account impact of high rates
The upside to the Fed’s string of rate hikes has been that consumers were able to earn good interest on their savings for the first time in years. Even when the Fed leaves interest rates unchanged, savers can do well.
Unfortunately, most account holders aren’t making the most of that potential opportunity.
Roughly one-fifth of Americans who have savings accounts don’t know how much interest they’re earning, according to a quarterly Paths to Prosperity study by Santander US, part of the global bank Santander. Among those who did know their account’s interest rate, most were earning less than 3%.
But consumers have time to make a change that could enable them to make more from their savings.
“We’re still a long way from (the Fed) beginning to cut rates,” said Greg McBride, chief financial analyst at financial services platform Bankrate. “This is great news for savers, who will continue to enjoy inflation-beating returns in the top-yielding, federally insured online savings accounts and certificates of deposit. For borrowers, interest rates staying higher for a longer period underscores the urgency to pay down and pay off costly credit card debt and home equity lines.”
The string of Fed rate hikes that began in March 2022 has made it costlier for consumers to borrow as interest rates on credit cards and other loans increased dramatically.
At the same time, inflation has made daily needs more expensive, pushing more Americans to lean on credit cards to get by. But lenders have become more reluctant to issue new cards, so in the midst of the holiday season, more shoppers are seeking higher credit limits, experts say.
In October, the application rate for higher limits rose to 17.8% from 11.2% in the same month the previous year, and from 12.0% in 2019, New York Fed data showed.
For some consumers, a higher limit on a card they already have is about their only option.
“After COVID, inflation and interest rates went out of control … people have less emergency funds for car repairs or buying presents,” said Brandon Robinson, president and founder of JBR Associates, which specializes in retirement strategies. “What they’re doing is using more credit card utilization – over 30% or well over 50% of their credit card allowance – and then can’t get approved for another card because their credit rating is down.”
Inflation is leading more Americans to work multiple jobs
The number of Americans working at least two jobs is at its highest peak since before the COVID-19 pandemic, according to federal data, an uptick that may reflect the financial pressure people are feeling amid high inflation.
Almost 8.4 million people had multiple jobs in October, the Labor Department said, a figure that represents 5.2% of the laborforce, the highest percentage since January 2020.
“Paying for necessities has become more of a challenge, and affording luxuries and discretionary items has become more difficult, if not impossible for some, particularly those at the lower ends of the income and wealth spectrums,” Mark Hamrick, senior economic analyst at Bankrate, told USA TODAY in an email.
People may also be moonlighting to sock away cash in case they’re laid off since job cuts typically peak at the start of a new year.
What is the Federal Reserve’s 2024 meeting schedule? Here is when the Fed will meet again.
What is the mortgage interest rate today?
Mortgage rates are falling, so is it time to buy?
It depends.
First of all, the Fed doesn’t directly set mortgage rates, but its actions have an impact. For instance, when the central bank was steadily boosting its key rate, the yield on the 10-year treasury bond went up as well. Because those bonds are a gauge for the interest applied to an average 30-year loan, mortgage rates increased.
But over the past six weeks, mortgage rates have been declining, averaging 7% for a 30-year fixed mortgage. That’s down from almost 7.8% at the end of October, according to data released by Freddie Mac on Dec. 7.
That may be giving some wannabe homeowners the confidence to start house hunting. For the week ending Dec. 1, mortgage applications rose 2.8% from the prior week, according to the Mortgage Bankers Association.
“However, in the big picture, mortgage rates remain pretty high,” says Danielle Hale, senior economist for Realtor.com. “The typical mortgage rate according to Freddie Mac data is roughly in line with what we saw in August and early to mid-September, which were then 20 plus year highs.”
So, many potential buyers may still need to sit on the sidelines, waiting for rates to drop further, says Sam Khater, chief economist for Freddie Mac. Hale and many other experts believe mortgage rates will dip next year.
Interest rate projection 2024
The Fed is expected to cut interest rates next year, though markets and economists disagree about how many rate cuts there will be.
Futures markets forecast there will be four or five rate cuts in 2024, amounting to a quarter of a percentage point each. The cuts, they predict, should start by spring, and ultimately drop interest rates as low as 4% to 4.25%.
But core prices, which leave out the volatile costs of food and energy and are the metric followed more closely by the Fed, ticked up 0.3% in November, higher than the 0.2% increase the month before. That might make the Fed more hesitant to nip rates in the immediate future.
Goldman Sachs and Barclays expect there to be only two rate decreases in 2024. And Fed Chair Jerome Powell has cautioned in recent public remarks that it was “premature” to talk about rate cuts.
November inflation report
Inflation dipped slightly last month, with falling gas prices mitigating the impact of rising rents.
Consumer prices overall increased 3.1% from a year earlier, slightly below the 3.2% rise in October, according to the Labor Department’s consumer price index. That slower pace moves the inflation rate nearer to the level, reached in June, that was the lowest in over two years. Month over month, prices increased a slight 0.1%.
Core prices, however, which leave out the more erratic costs of food and energy and which are more closely monitored by the Fed, increased 0.3% in November after rising 0.2% the previous month. That means core inflation’s yearly increase remained at 4%, though it’s the lowest level since September 2021.
A key advantage of the VA loan is that eligible homebuyers can make a home purchase without a down payment requirement. But surprisingly, only 3 out of 10 veterans know that they can get a VA loan to purchase a home without a down payment.
Let’s explore what this surprising statistic means for veterans and how you can use the VA loan to your advantage.
Check your VA home buying eligibility. Start here (Dec 13th, 2023)
Most veterans don’t know about the VA loan’s down payment requirement
According to a recent survey by Veterans United, only three in ten veterans reported knowing they can use the VA loan to purchase a home without a down payment. That equates to thousands of veterans who might be missing out on the opportunity to purchase a home.
VA borrowers can purchase a home without a down payment
A down payment can be a major hurdle for prospective home buyers. After all, many would-be homeowners face a big challenge in saving up thousands of dollars for a down payment on a home loan.
Veterans and active-duty service members who qualify for the VA loan don’t have to wait to save for a down payment. Instead, veterans can get a loan with zero down payment. And that’s just one benefit of the VA loan, which also offers limited closing costs and relatively low interest rates.
Check your VA home buying eligibility. Start here (Dec 13th, 2023)
VA home loan statistics
It’s undeniably surprising that many veterans are unaware of the many benefits that the VA home loan, backed by the Department of Veteran Affairs, has to offer. While thousands of veterans might not know about zero down payment requirement, many veterans can take advantage of the opportunity
For example, nearly 9 out of 10 VA home loan borrowers finalized their home purchase with less than 10 percent down. According to Realtor.com, the average down payment percentage for a VA loan was 2.7 percent of the home’s purchase price, which is significantly lower than the average down payment percentage of 19.1 percent for conforming loans.
VA home loan benefits 2024
The zero down payment requirement is a big deal for military home buyers. However, that’s not the only benefit offered through the VA loan loan. Other benefits include:
More flexible credit score requirements: The VA itself doesn’t set a minimum credit score requirement. While the VA lender will set its own qualifying minimums, military borrowers are free to shop around and find a lender willing to work with them.
More affordable monthly payments: Competitive interest rates and no PMI requirements often help VA home loan borrowers access lower monthly payments. The amount you can save varies based on your unique situation.
A combination of factors makes homeownership more attainable for eligible veterans. And the far-reaching benefits of a VA loan have big consequences for homeownership. According to Realtor.com, the homeownership rate for veteran households nationwide was 79.9 percent in 2021. That’s 16.2 percent higher than the homeownership rates in non-veteran households.
The bottom line: VA loans can be a great deal for military borrowers
A VA home loan is stacked with benefits for prospective homeowners. If you are a veteran or military member considering homeownership, take a close look at what the VA loan has to offer. Not only can it help bypass the need for a large down payment, but you might also benefit from the flexible credit score requirements and competitive interest rates.
Check your VA home buying eligibility. Start here (Dec 13th, 2023)
Good news, home buyers — expect both lower mortgage rates and home prices in 2024, which could ease the cost of homeownership, Redfin
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says.
In its housing outlook for 2024, the real-estate brokerage said that next year would not only be “a year of change” but one where aspiring homeowners will finally be “catching a break.”
“2024 will be neither a buyers’ nor a sellers’ market, but we think that the market will be tilting in favor of buyers with lower rates, lower prices, and more inventory as sellers get tired of waiting for rates to drop,” Chen Zhao, Redfin’s economics research lead, told MarketWatch.
“The increase in supply is likely to exceed the increase in demand, creating a market more friendly for buyers than 2023,” she added.
Home prices and mortgage rates to fall in 2024, according to Redfin
The brokerage expects home prices to fall 1% on a year-over-year basis in the second and third quarter of 2024. Aside from a brief drop in the first half of this year, the decrease would be the first time prices would have fallen since 2012, Redfin added, “when the housing market was recovering from the Great Recession.”
The median price of a home sold in October 2023 was $391,800, according to the National Association of Realtors. Prices were up 3.4% from last October.
Redfin expects home prices to fall in part because it expects the “lock-in” effect to subside. The lock-in effect refers to people who don’t want to sell their current home because of their relatively low mortgage rate.
“We’ve recently seen a double-digit annual increase in homeowners contacting Redfin for help selling their home, alongside a small drop in requests from prospective buyers,” the company noted.
Some homeowners are warming up to the idea of borrowing at a rate of 7%, Redfin said, because they may not see mortgage rates fall to the 3% – 4% range any time soon. Others see an opportunity to cash out on their equity and move to a more affordable place, the company added.
Redfin’s forecast also expects mortgage rates to drop. The rate on the 30-year fixed-rate mortgage was averaging 7.22% as of Nov. 30, according to Freddie Mac. The 30-year will fall throughout the year, Redfin said, and drop to 6.6% by the end of 2024. Even though Redfin expects the U.S. Federal Reserve will keep interest rates at their current level for the time being, it’s expecting a rate cut two or three times starting in the summer, which would bring mortgage rates down, they explained.
A separate 2024 housing forecast by Realtor.com predicted that mortgage rates will drop to 6.5% by the end of 2024.
Redfin also expects home prices to fall more significantly in certain parts of the nation, such as in parts of coastal Florida. Considering the run-up in home prices in places like North Port and Cape Coral, Redfin explained, there’s a “lot of room to fall.” Additionally, there’s the rising risk of climate disasters, such as hurricanes and storm surges, which make it more expensive to own homes in such areas given the rising cost of home insurance and other associated repair and rebuilding costs.
“At the same time, affordable and climate resilient places such as Albany, N.Y., Rochester, N.Y., and Grand Rapids, Mich., could see more rapid price appreciation,” Zhao added.
Political and legal developments to watch for in 2024
Redfin also noted that buyers and sellers will be more aware of the commissions they pay to real-estate agents next year, on the back of a landmark jury verdict in 2023 which upended a decades-long arrangement. Redfin is one of the defendants named in another class-action suit by home sellers, and is accused of engaging in a price-fixing conspiracy to inflate commissions.
Instead of the home seller bearing the 5-6% fee paid to their broker, which has historically been shared between the listing agent and the buyer’s agents, the arrangement may change. “Home buyers in 2024 will become even more aware of how much an agent costs,” Redfin said, “and less apologetic about negotiating commissions.”
Buyers may also forgo working with their own agent and work directly with the listing agent, Redfin suggested.
Additionally, Redfin expects the Biden administration to focus more efforts on housing, given how rapidly affordability has deteriorated in the last year. Considering the fact that home prices are up more than 20% since the president took office, Redfin said, “high housing costs are making many Americans feel poor.”
The Biden-Harris campaign did not respond immediately to a request for comment.
“We expect President Biden and his opponents to make splashy housing policy proposals to try to lure voters who are unhappy with their economic prospects,” Redfin said.
“Democrats are likely to focus on subsidizing down payments for first-time homebuyers, promoting inclusionary zoning and funding housing vouchers, which are all popular with liberal voters,” the company added. “Republicans are more likely to focus on reducing regulations that limit development.”
Mortgage rates continued their downward trajectory this week as the 10-year Treasury yield dropped below 4.2% for the first time since September, according to new data from Freddie Mac.
The 30-year, fixed mortgage rate averaged 7.03% for the week ending Dec. 7, according to Freddie Mac‘s Primary Mortgage Market Survey. That’s down significantly from last week’s 7.22% and up from 6.33% the same week a year ago.
Meanwhile, HousingWire’s Mortgage Rates Center showed Optimal Blue’s average 30-year fixed rate on conventional loans at 6.96% on Thursday.
The 30-year, fixed-rate mortgage fell by almost 80 basis points in six weeks, Sam Khater, Freddie Mac’s chief economist, said in a statement.
He noted that while the drop in mortgage rates initially prompted an uptick in mortgage demand, it’s not enough to attract more homebuyers to the housing market.
“Although these lower rates remain a welcome relief, it is clear they will have to further drop to more consistently reinvigorate demand,” Khater added.
Meanwhile, investors continue to be confident in the fact that the Federal Reserve is done with its rate hikes, especially after the release of cooler October job openings data on Tuesday.
Realtor.com Economist Jiayi Xu predicts that sustained improvement in inflation will bring average mortgage rates down to 6.5% by the end of 2024.
Markets in Northeast, Midwest will perform well in 2024
According to Realtor.com’s Top Housing Markets for 2024, the Northeast and Midwest markets will stand out thanks to their affordability, high quality of life and strong job markets. Declining interest rates will also breathe some life back into Southern California housing markets next year with an anticipated rebound.
Well, another year is nearly in the books, which means it’s time to look ahead at what 2024 might have in store.
As is customary, I take a look at mortgage rate predictions from a variety of economists and offer up my own take for the upcoming year.
I also look back at the predictions for the current year to see how everyone did (hint: not well!).
The big story in 2023 was out of control inflation. The story going forward might be cooling inflation.
Though there’s also the risk it resurges, at which point mortgage interest rates could rise again.
Mortgage Rates Are Expected to Go Down in 2024
First let’s talk about the general outlook. Most expect mortgage rates to go down in 2024, which was actually the call in 2023 as well.
But guess what? Everyone was wrong. Expectations that the 30-year fixed would fall back into the 5% range were way off.
Instead, interest rates on the popular loan program surpassed the 8% mark before finally letting up over the past month.
So while many economists are optimistic for the coming year, take note that they felt the same way a year ago. And got it wrong.
But things aren’t exactly the same. The Fed increased its fed funds rate 11 times, which many believe has worked to corral inflation.
And this could lead to weak economic output and rising unemployment, which could result in Fed rate cuts as early as March 2024.
This doesn’t necessarily mean mortgage rates would follow the Fed lower, but it could signal that the worst is behind us.
As such, mortgage rates may have peaked, and it’s possible they could continue to drift lower and find a comfortable medium between their old record lows and recent near-21st century highs.
MBA 2024 Mortgage Rate Predictions
First quarter 2024: 7.1% Second quarter 2024: 6.6% Third quarter 2024: 6.3% Fourth quarter 2024: 6.1%
First up is the Mortgage Bankers Association (MBA), which is often fairly bullish about mortgage rates improving.
They are, after all, fans of mortgages being originated, and lower rates equate to higher funding volume.
Last year, they predicted that the 30-year fixed would ease throughout 2023 and average 5.2% in the fourth quarter.
That didn’t work out as planned, with the 30-year fixed closer to 7% today. And it was actually above 8% just a month ago.
Still, they are predicting lower mortgage rates in 2024, just as they did last year. The difference this time around might the inflation story.
It has cooled a lot since then, which could lead to Fed rate cuts and an easing in the 10-year treasury yield, which correlates well with mortgage rates.
Ultimately, they may have expected inflation to improve faster than it did, which is why they got rates wrong in 2023.
Now that inflation actually is significantly lower, their predictions could come to fruition. Also note that their latest prediction is a full percentage point higher than it was a year ago.
They only expect the 30-year fixed to fall to 6.1% by the end of 2024 versus 5.2% when they made the same forecast a year ago.
Fannie Mae 2024 Mortgage Rate Predictions
First quarter 2024: 7.6% Second quarter 2024: 7.4% Third quarter 2024: 7.2% Fourth quarter 2024: 7.1%
Next up is Fannie Mae, which purchases and securitizes conforming mortgage loans.
They are a lot less bullish than the MBA, as they expect the 30-year fixed to remain in the 7% range for all of 2024.
It’s possible they’ll update their forecast in light of recent improvements in mortgage rates.
But as it stands, they don’t expect the 30-year fixed to drop below 7.10%, which is basically where it’s at now.
So we can take this to mean they expect mortgage rates to remain relatively flat at these new, higher levels for much of 2024.
I will update their numbers if they release a new forecast before the end of 2023.
Freddie Mac 2024 Mortgage Rate Predictions
First quarter 2024: n/a Second quarter 2024: n/a Third quarter 2024: n/a Fourth quarter 2024: n/a
While Freddie Mac stopped releasing a monthly outlook for mortgage rates (for reasons unknown), they still do a monthly commentary.
And from that we can glean some ideas about where they think mortgage rates will go in 2024.
Their latest outlook notes that they expect “recent volatility in Treasury yields to abate which will allow modest reductions in mortgage rates.”
How modest? Well, they said mortgage rates will probably not fall below 6% “in the short run” thanks to the higher for longer narrative.
But given the recent improvement in rates (and the 10-year bond yield), it’s possible rates could get back in the low-6s in 2024.
And if the borrower pays discount points, a rate in the 5% range is also possible, assuming those mortgage rate spreads tighten due to decreased volatility.
A year ago, they expected the 30-year fixed to fall to 6.1% by the fourth quarter of 2023. So perhaps they’re being a bit more conservative.
However, they expect home prices to rise a further 2.6% in 2024 thanks to mortgage rate lock-in effect and favorable demographics, including an elevated share of first-time home buyers.
NAR 2024 Mortgage Rate Outlook
First quarter 2024: 7.5% Second quarter 2024: 6.9% Third quarter 2024: 6.5% Fourth quarter 2024: 6.3%
The National Association of Realtors (NAR) releases a monthly U.S. Economic Outlook that contains their mortgage rate predictions for the year ahead.
I’m going off their October version until I can get a more updated one, so I expect their numbers to get even more optimistic given the recent improvement in mortgage rates.
There’s even a chance they’ll throw out a number in the high-5% range for the fourth quarter of 2024.
NAR chief economist Lawrence Yun also expects the 30-year fixed to average between 6-7% by the spring home buying season.
He added that “we’ve already reached the peak in terms of interest rates.” So his expectation is it’ll get better from here. The question is how much better.
Zillow’s 2024 Mortgage Rate Prediction
Next we have Zillow. Sometimes they make mortgage rate predictions, sometimes they don’t.
Given how wrong everyone has been lately, they said, “Predicting how mortgage rates will move is a nearly impossible task…”
However, they do expect home prices to “hold steady in 2024,” declining by a negligible 0.2%.
They also believe mortgage rates may “hold fairly steady” too in coming months if recent inflation readings are any indication.
Together, the cost of buying a home could level off next year, or even drop if mortgage rates do too. But they aren’t throwing out specific numbers.
Interestingly, Zillow expects more mortgage rate locked-in homeowners to “end their holdout for lower rates and go ahead with those moves.”
So even if rates don’t get much better, the holdouts might say enough is enough and list their properties.
If rates do keep dropping, this argument becomes even more compelling. So much-needed supply could be freed up in the process.
Redfin 2024 Mortgage Rate Predictions
Meanwhile, Redfin believes mortgage rates will steadily decline throughout 2024, but remain above 6%.
Specifically, they expect the average 30-year mortgage rate to linger around 7% in the first quarter, then inch down as the year goes on.
By the end of 2024, the real estate brokerage thinks mortgage rates will fall to about 6.6% thanks in part to 2-3 rate cuts from the Fed.
Offsetting these cuts is the expectation that we will avoid a recession in 2024. So a lack of serious economic pain means more modest declines in rates as opposed to sizable ones.
Still, they see home buyers finally catching a break because home prices are also predicted to be flat.
This means monthly payments will fall further from their recent all-time highs, which we can all agree is a good thing.
Realtor 2024 Mortgage Rate Forecast
Meanwhile, the economists at Realtor.com are predicting a minimal decline in mortgage rates, but still an improvement.
They expect the 30-year fixed to average 6.8% in 2024 after averaging 6.9% in 2023. So just a 10-basis point decrease.
However, they do expect rates to finish off 2024 at 6.5%, which is a little more optimistic.
It’s also markedly better than the 2023 year-end expectation of 7.4%. And would essentially take us back to the end of 2022, when the 30-year fixed averaged 6.42%.
In other words, we might be able to forget 2023 ever happened. But we still won’t be able to revisit early 2022 anytime soon.
At that time, the 30-year fixed was a mindboggling 3.22%.
The Truth’s 2024 Mortgage Rate Predictions
First quarter 2024: 6.875% Second quarter 2024: 6.625% Third quarter 2024: 6.25% Fourth quarter 2024: 5.875%
Like everyone else, I was wrong about mortgage rates in 2023. I thought they’d slowly move lower throughout the year before ending the year around 5%.
Instead, we are closer to 7% today, which is a pretty big miss. That being said, what I assumed would play out last year (lower inflation), seems to be happening now.
There are also several rate cuts now expected in 2024, with the CME FedWatch Tool favoring a 4% – 4.25% range for the federal funds rate by December 2024.
The 10-year bond yield is also expected to moderate further, and could be back to the mid-3% range.
If we assume that mortgage rate spreads also tighten from their current levels near 300 bps to something more reasonable, such as 200 bps, we could see noticeably lower mortgage rates in 2024.
Taken together, a spread of 200 bps and a 3.5% 10-year yield could signal a return to mid-5% mortgage rates.
That might sound a little too good to be true, so I’ll err on the side of caution and go for an average rate as low as 5.875% to end the year.
Remember, there are still a lot of unknowns and potential curveballs ahead. We’ve got multiple geopolitical events that are still unfolding.
And potentially the most contentious U.S. presidential election in history. So as always, mortgage rates will ebb and flow, and opportunities will present themselves.
There will be good months and bad months, but I expect mortgage rates to continue trending lower as 2024 unfolds.