In a year filled with economic unpredictability, the question on everyone’s mind is, "How low will mortgage interest rates go in 2024?" Mortgage rates, which spiked to a staggering 8% in October 2023, have steadily dropped to around 6.2% by mid-2024. But the big question remains: will they dip even further before the year ends, or have we already hit the floor?
Let’s dive into the forces driving mortgage rates, where they might head next, and what that means for homebuyers, homeowners, and real estate investors.
What’s Driving Mortgage Rates Lower?
Despite the Federal Reserve cutting its benchmark rate by 50 basis points (0.5%) in recent months, mortgage rates haven’t followed suit as swiftly as expected. This divergence has left many scratching their heads, especially as mortgage rates initially spiked in response to the Fed’s aggressive move. However, there are two major factors that could pull mortgage rates down further by year-end: the labor market and the mortgage spread.
#1. A Softening Labor Market
A cooling job market tends to bring down mortgage rates. Why? When employment numbers soften, it signals a slowing economy, prompting investors to pull back from riskier assets and flock to safer bets like bonds. As demand for bonds increases, their prices go up, pushing yields (and consequently, mortgage rates) down.
With recent signs of economic softening, it’s possible we’ll see a further weakening of the labor market, which could spur a drop in mortgage rates by driving more investors toward bonds.
#2. Narrowing Mortgage Spreads
One often overlooked element in the mortgage rate equation is the "mortgage spread"—the difference between the average 30-year fixed mortgage rate and the yield on the 10-year Treasury note. Historically, this spread ranges between 1.65% and 1.85%. Currently, though, it’s sitting much higher, around 2.45%, due to perceived risks in the mortgage market.
If this spread narrows, as it has been doing over the last 30 days, we could see a further dip in mortgage rates. Should the spread fall by another 45 basis points by year-end, some experts predict mortgage rates could hit 5.75%.
How Much Lower Could Mortgage Rates Go?
Market analysts are divided on how much further rates could fall in 2024. According to projections:
- Bright MLS predicts rates will hover below 6.4% through the fourth quarter of 2024.
- BNY Mellon expects rates to average around 6.2% at year-end and possibly dip to 6% by the first quarter of 2025.
- Wells Fargo forecasts a slight decline to 6.15% by the end of this year, while Freddie Mac sees a gradual decrease but expects rates to remain elevated.
- Mortgage Bankers Association (MBA) anticipates rates will average 6.5% by Q4 2024, trending downward into next year.
With some forecasts hinting at 5.75%, it’s clear that while rates may go lower, it won’t be a dramatic plunge.
What Needs to Happen for Rates to Fall?
For mortgage rates to drop further, two key elements need to align:
1. Labor Market Weakening: Further signs of a softening economy will push investors toward safer assets, reducing bond yields and lowering mortgage rates.
2. Mortgage Spread Normalization: If the mortgage spread returns to historical norms, we could see more confidence in mortgage-backed securities. This confidence would encourage investors to accept lower returns, pulling rates down further.
What This Means for You
If you’re a homebuyer, lower mortgage rates improve affordability and expand your purchasing power. A drop in rates means you can either qualify for a larger loan or enjoy a lower monthly payment, making the dream of homeownership more attainable.
For homeowners, especially those considering a refinance, even a half-point drop in rates can yield substantial savings. For instance, refinancing a $600,000 mortgage from 6.75% to 6% could save you around $3,000 over five years. A full percentage point drop, however, could result in savings of nearly $7,000 over the same period—translating to almost $400 in monthly savings.
Why Predicting Rates Is Tricky
While there’s potential for further rate reductions, predicting mortgage rates is far from an exact science. Economic conditions, global events, and Federal Reserve actions all play critical roles. One thing is certain: it’s vital to stay informed, work with a knowledgeable mortgage professional, and have a strategic plan in place to navigate this ever-changing landscape.
For those considering buying, refinancing, or investing in real estate, the window for lower rates may still be open. If you want to maximize your financial opportunities, now is the time to connect with an expert who can guide you through these complex decisions. Horton Investment Solutions is here to help—offering a free consultation to help you seize today’s market opportunities.
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