Homebuyers Are Optimistic That Mortgage Rates Will Improve — But Do Experts Think It Be Easier to Buy A House in 2024?
Written by
Yaël Bizouati-Kennedy
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Last year was an arduous one for homebuyers who were burdened by soaring rates, low inventory and high prices. Yet, the fact that at its last meeting of the year, the Federal Reserve paused its interest rate hikes for the third time and is now widely expected to start cutting rates at some point in 2024 is bringing renewed optimism to the housing market.
Indeed, mortgage rates have steadily decreased in December after hovering around a whopping 8%. Yet, they ticked up slightly this week with the 30-year average rate standing at 6.66% as of Jan. 11, according to Freddie Mac. This is still double from where they were two years ago: 3.22% on Jan. 6, 2022.
And now, new hotter-than-anticipated inflation data has some experts saying that mortgage rates could reverse course — and in turn, affect once again affordability. In December, inflation rose 0.3%, to an annual rate of 3.4%, up from 3.1% in November, according to the Consumer Price Index (CPI) released Jan. 11.
And prices for shelter continued to rise — up 6.2% in the past year — contributing to more than half of the overall inflation.
What Does it Mean for the Housing Market?
According to Danielle Hale, chief economist, Realtor.com, this means that the significant decline in mortgage rates observed since October may have gotten ahead of the data. In fact, she added, mortgage rates have already steadied and are likely to increase further.
Now, in the big picture, if mortgage rates remain lower, it will be a big help to homebuyer purchasing power.
For instance, she explained that if mortgage rates stabilize near 6.6%, a mortgage borrower will save $80 per month or $1,000 per year for every $100,000 borrowed.
“Put another way, a borrower who could afford the monthly payment on a $400,000 loan when rates were 7.79% in October could borrow $450,000 with the same monthly principal and interest payment with rates at their 6.61% low,” said Hale.
Hale added that that in addition to mortgage rates, other factors are affecting affordability, such as the lack of availability of homes for sale.
“Fortunately for home shoppers, Realtor.com’s December Housing Trends Report gives a few reasons for optimism,” she said.
Indeed, the report found that active listings grew on an annual basis for a second month in December after declining in the prior four months.
“We’re at a seasonal lull in housing market activity, so inventory levels are low, but the shift in momentum is encouraging and would be a reason for buyers to be optimistic if it can be sustained,” she said.
Can Buyers be More Optimistic This Year?
Moody’s Analytics housing economist Matthew Walsh said thatwhile December’s CPI report came in a bit stronger than expectations, he expects the Fed to stay the course, adding that Moody’s Analytics anticipates four rate cuts this year, with the first beginning in May.
“All told, this [CPI] reading will likely have little effect on the near-term path of mortgage rates, but predicting short-term movements in interest rates is challenging and rates can be volatile,” added Walsh, noting that Moody’s Analytics baseline outlooks expects mortgage rates to have peaked and will slowly decline over 2024.
According to him, last year is shaping up to have been the worst year for existing home sales since the Great Financial Crisis and sales will improve little in 2024.
“Even with the modest decline in mortgage rates, housing affordability will remain near its lowest level in four decades, keeping many potential homebuyers out of the market,” he said.
In addition, he too noted that limited inventory will make finding a home more difficult for those who can afford to make the purchase.
“This constrained supply is driven by the so-called lock-in effect, where existing homeowners with ultra-low interest, or those that own their home free and clear, have a strong financial incentive to remain put,” he said.
Walsh also noted that low affordability will remain the primary weight on the housing market in 2024.
“Even with a modest improvement in mortgage rates — our forecast currently expects the 30-year fixed rate mortgage to decline by about 50 basis points — monthly mortgage payments on a median priced home with a 20% down payment will remain more than 50% higher than in January 2022, before the Fed began hiking interest rates,” he added.
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