When could mortgage rates fall in 2024?
If you've thought at all about buying a new home recently, you probably know that mortgage rates are on the high side right now. As of November 20, 2023, the average rate for a 30-year fixed-rate mortgage is 7.74%, while the average for a 15-year fixed-rate mortgage is 7.01%. This, especially when combined with high home prices, is enough to make many potential homebuyers shy away and either stay in their current homes or stick with the rental market for a bit longer.
That said, some people think there could be relief coming next year – but maybe not until the weather starts to warm up again.
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When could mortgage rates fall in 2024?
While it's unlikely that we'll see a return to the sub-3% mortgage rates that were around last decade anytime soon, there could well be some relief for potential mortgage borrowers coming in 2024. Here's what to know:
Expect drops in the second half of the year
Generally speaking, if you're looking for a drop in mortgage rates, don't expect to see it as soon as the calendar turns to 2024. Instead, expect rates to stay steady for a bit and then drop in the second half of the year.
"I believe that we'll see similar rate activity in the first half of 24, but it wouldn't surprise me if rates go down in the second half," says Nick Bailey, President and CEO of real estate company RE/MAX.
There are a variety of reasons that rates could go down in the second half of the year, but the biggest is that the Federal Reserve may finally get to the point where it slashes the federal funds rate.
The Fed has raised the federal funds rate repeatedly over the past 18 months in an attempt to fight inflation – something Bailey said happened too late, leading to the continued high rate environment today.
Though it is possible that there will be another hike to the federal funds rate in December, it is also expected that there will be two rate cuts in 2024. Though this does not directly impact mortgage rates, the rate lenders offer to consumers tends to move in step with the federal funds rate. If inflation does get under control – and it has gotten better, sitting at just over 3% in October 2023 – the Fed could cut rates, and Bailey says he could see mortgage rates of under 7% becoming more common.
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Don't let rates control you
Stepping back from when rates might drop for a second, it's important to not let rates control your home shopping strategy. Bailey says that the principle of "marry the house, date the rate" is especially important during times when the available rates are high.
Mortgage refinancing will always be an option, but there are other factors to consider — like home prices that seem to keep rising.
"[Shoppers are] not considering the fact that they can always refinance, but if house prices continue to go up, they can't claw back the price," he says.
Simply put, you might never be able to time the market for the perfect transaction. If your rate is higher than you'd like, refinancing will always be available, but the home you want in your price range might not be.
Make sure you shop around
No matter what happens to the broader rate environment, make sure you shop around when considering your mortgage options. No two lenders are going to offer the same exact rates on different products, so look at a wide range of options. Also, consider looking at something other than a traditional mortgage.
"I do believe that 90% of people shouldn't be in a 30-year fixed mortgage," says Bailey.
One option is to look at an adjustable-rate mortgage, known as an ARM. With an ARM, your interest rate is occasionally adjusted. While you might worry about having your rate go even higher, you can look for an ARM with a rate cap that will guarantee you won't go above a certain point – and you'll still get the benefit of rates falling if that's the direction things go.
The bottom line
Mortgage rates are high right now, and they are likely to remain high for the foreseeable future. In the second half of 2024, though, you could start to see rates drop at least a little bit, though not to where things were in the 2010s. No matter when you're shopping, make sure you are thinking about more than just interest rates – and that you consider all mortgage products available to you.
