What is happening with Mortgage rates?

Many prospective homebuyers are curious about future mortgage rates. While it's impossible to predict rates accurately, we can make educated guesses based on historical patterns.

Mortgage rates have a well-established correlation with inflation. Typically, high inflation leads to higher mortgage rates. This pattern was evident over the last year, with rising inflation and increasing mortgage rates. However, with inflation now showing signs of slowing, the Federal Reserve has halted its hikes in the federal funds rate. This pause leads many experts to anticipate a decrease in mortgage rates.

A significant reason for the elevated mortgage rates is the vast gap between the 30-year fixed mortgage rate and the yield on 10-year Treasury bonds. Usually, this difference hovers around 1.7 percentage points. However, it's now about 3 percentage points, primarily due to increased investor volatility.

Recently, there have been subtle indications of marginally lower mortgage rates, although the situation remains unstable. This volatility is expected to persist into the following year. Despite these fluctuations, the general expectation for 2024 points towards a gradual decline in mortgage rates.

Insights from Top Economists

According to Redfin economist Chen Zhao, yields rise because "the overall economy is stronger than expected, and investors now expect it to remain resilient despite high-interest rates for longer."" High yields translate to high mortgage rates, and it's unlikely that either will fall until the economy begins to show signs of cooling.”

"We expect the higher mortgage rate environment to continue to dampen housing activity and further complicate housing affordability into 2024," says Doug Duncan, Fannie Mae's senior vice president and chief economist, in an Oct. 16 statement.

Both fiscal and monetary policies have contributed to the much higher level of mortgage rates in 2023," says MBA chief economist Mike Fratantoni in an Oct. 15 statement. "The Fed's hiking cycle is likely nearing an end, but while Fed officials have indicated that additional rate hikes might not be needed, rate cuts may not come as soon or proceed as rapidly as previously expected.

Looking ahead to mortgage rate projections, various organizations have provided their forecasts for 2024 and 2025. Fannie Mae predicts rates to be at 6.9% in 2024. The Mortgage Bankers Association estimates rates at 6.5% for 2024 and 5.7% for 2025. Similarly, the National Association of Home Builders forecasts a rate of 6.79% in 2024, dropping to 5.72% in 2025. The National Association of Realtors expects a rate of 6.3% in 2024; lastly, Wells Fargo anticipates 6.39% in 2024 and 5.7% in 2025.

Smart Strategies for Homebuyers in the Current Market

Now is an opportune moment to be a homebuyer, given the reduced competition in the market. Additionally, the potential for lower rates in the future opens up the possibility of refinancing. The following information could be particularly useful if you're considering buying a home.

. Strengthen your credit score through proactive measures.

. You can negotiate with your lender to match the best deal you've found.

. Secure rate quote estimates from at least three different lenders.

. Opt for a loan with a shorter repayment term to save on interest.

. Discuss the possibility of waiving or reducing closing costs with your lenders.

. Accumulate a larger down payment to improve loan terms.

. You can explore buying discount points for a lower interest rate.

. You can converse with your lender about the benefits and risks of an adjustable-rate mortgage.

. If you can buy a new construction, many developers offer insane buy-downs and incentives to move the inventory, which can provide significant savings.

. Discuss buy-down programs with both sellers and your lender to capitalize on potential deals.

Decoding the Myths: Housing Crash and Recession Fears

Contrary to some opinions that foresee an imminent housing market crash or an approaching recession, the current situation suggests otherwise. The housing market is still grappling with supply and demand issues due to an inventory shortage. A market crash typically requires excess inventory, which is not the case currently. Similarly, the likelihood of a recession is not likely.

The Wall Street Journal regularly consults experts on economic matters, and their insights are revealing. Last year, many of these experts anticipated a recession by now. However, upon reviewing current leading indicators, they are revising their views. The consensus is now shifting towards a recession becoming increasingly improbable.

What Will Happen to Home Prices?

Recent data indicates the opposite. Home prices are increasing across most parts of the country. Experts predict this upward trend will persist, albeit at a more moderate and sustainable rate, which aligns better with typical housing market patterns – a positive development.

Home Price Expectation Survey conducted by Pulsenomics. This survey gathers insights from over 100 economists, real estate professionals, and investment and market strategists. The accompanying graph from the survey clearly illustrates a collective expectation that home prices will increase but at a more moderate pace compared to the pandemic era. During the pandemic, sellers often received inflated offers and typically didn't have to cover repairs or offer concessions. However, that period has passed. The housing market's growth is now aligning more closely with traditional, steadier patterns.

According to Daryl Fairweather, chief economist at Redfin, “When rates come down, we’re going to be in store for another hot housing market where there are more buyers than sellers jacking up prices because we haven’t solved the problem” of low inventory, says Daryl Fairweather, chief economist at Redfin. “It’s still that affordability problem. That’s going to stay with us.” Fairweather adds, “In every scenario, rates are going to come back down,” she says. “It’s just a matter of when.”

If you're considering buying a home in Los Angeles or nearby areas, contact us for a free consultation. Being informed is empowering, and understanding each market's specific details and nuances enables you to make decisions confidently. Our role is to provide knowledge and guidance throughout your home-buying journey.