Nearly 40% of Americans Think Mortgage Rates Will Increase in 2024 — Here’s What the Experts Say
Written by
Laura Beck
Edited by
Emily Gadd
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A recent survey conducted by GOBankingRates asked Americans, “How much do you think mortgage rates will fall over the next year?” Surprisingly, nearly 40% said, “I believe they will increase.”
This stands in contrast to many expert predictions that rates will fall from their 2022 highs. But what are the expert opinions on the future direction of mortgage rates, and what’s behind the discrepancy with public perception?
Public Perception of Rising Rates
It’s understandable why many Americans think rates could continue rising. After hitting historical lows during the COVID -19 pandemic, rates climbed four percentage points in 2022 alone. For a $300,000 home loan, this translates to an increase in monthly payments of around $700. With inflation still elevated and the Fed’s hiking cycle potentially not over, some expect the ascent to continue. This public pessimism likely stems from the rapid rate shock in recent years.
Most experts are calling for stabilization or declines in 2024. So, why the discrepancy between public and expert opinion? Experts have the benefit of analyzing detailed economic trends, while general sentiment is typically extrapolated solely from recent experience.
“Consumers are notoriously terrible about predicting the future of mortgage rates,” said Dan Green, CEO at Homebuyer.com.
The Fed’s Influence: A Crucial Factor
“For mortgage rates to increase, the Fed should further increase the U.S. interest rates,” said Albert Lord, CEO of Lexerd Capital Management. “The GDP growth for next year is projected at 1.5%, relative to 2.3% for this year, and inflation at 3.2%. In addition, inflation expectations are contained below the current reading. The job labor market is softening, and unemployment is marginally increasing.”
Lord argued that these economic indicators suggest a softening economy, discouraging the Fed from further interest rate hikes to prevent a recession. “Given the above, mortgage rates are expected not to increase for 2024,” he concluded.
Michael Vestuto of Vestuto Realty Group also said he expected interest rates to fall in 2024. But he downplayed the influence of the Federal Reserve.
“The primary factor … is not the Federal Reserve’s rate, but rather a normalization in the yield spread of the 10-year Treasury bond,” he said. “Typically, mortgage rates are about 1.5 to 2.0 percentage points higher than the 10-year Treasury bond rate. However, in 2023, this spread widened to an unusually high 2.96 percentage points, pushing mortgage rates over 8%. For 2024, I anticipate the yield spread will align more closely with its historical average, potentially leading interest rates to settle in the upper- to mid-6% range.”
Downward Trend in Sight
Experts diverge on the timing and magnitude of rate changes. According to Matt Dunbar, SVP at Churchill Mortgage, “Looking ahead to mid-2024, if decreasing inflation persists, rates might fall to about 6.5%-6.75%.”
The exact pace and depth of declines will depend on how inflation unfolds relative to Fed expectations. But the broad expert consensus calls for some measure of rate relief for homebuyers.
A Bold Prediction
Green said he expects mortgage rates will drop throughout 2024.
“Wall Street has to shift its bets,” he said. “It’s becoming increasingly obvious to market observers that the Federal Reserve successfully navigated its soft landing. There was never a recession. The economy stayed strong, employment held stable and prices eased nationwide.”
He believes this will lead to a decrease in interest rates, boosting purchasing power and releasing pent-up demand.
“Mortgage rates could reach into [the 5% range] by summer,” he concluded.
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