Sharp drop in mortgage rates in February 2024: What’s going on?

2024 started with positive news for the housing market, as citizens witnessed a sharp drop in mortgage rates this month. According to Freddie Mac on Thursday, the average rate for a 30-year loan decreased to 6.63% from the previous week’s 6.69%. This marks the second drop in mortgage rates in 2024, and it is expected to lower further as inflation moderates. This could help stimulate the housing market.

As several indicators suggest that interest rates may be cut sometime this year, experts in the housing industry are predicting that the spring buying season will be busier than usual starting in the next few months. This is because the mortgage rate drop is expected to bring more supply and demand back to the housing market.

Throughout the year, inflation had been steadily declining, and the Federal Reserve suggested that it would cut the federal funds rate. However, the most recent data—including the most expected Consumer Price Index report from last week—indicates that we might have to wait a little while longer before mortgage rates decline. The average rate on a 30-year mortgage began the month at a low, but it has since increased somewhat and is now back around where it was in mid-December.

According to the CME FedWatch Tool, markets are now more likely to predict that we will not see a cut until June at the latest, even if initially they were wagering that the first Fed decrease may occur at the central bank’s next meeting in March.

Although mortgage rates aren’t directly tied to the Fed’s benchmark rate, they may increase or decrease depending on how investors anticipate the Fed’s actions will affect the overall economy. Mortgage rates may also begin to decline if additional evidence indicates that inflation is decreasing. However, rates may rise much further if price inflation slows down or picks back up.

What aspects influence mortgage rates?

Mortgage rates are influenced by a wide range of intricate elements, such as inflation, the Federal Reserve’s monetary policies, and general economic conditions. But the bond market has a direct effect on long-term mortgage rates. In addition, your financial profile, the charges incurred by the lender you work with, and their business expenses will all influence the mortgage rate that you are offered.

Rates may rise in response to a decrease in the amount of cash available for lending if demand for mortgages increases. On the other hand, lenders may think about providing more attractive rates or other incentives to draw in borrowers when there is less borrower demand, as we are currently witnessing as a result of average interest rates that remain in the high 6% to low 7% area.

Mortgage rates are predicted to decrease in 2024

Some experts predict the following factors will influence the average 30-year fixed-rate mortgage in 2024:

• Fannie Mae Housing Forecast. In Q1 2024, the average 30-year fixed-rate mortgage will be 7%. Over the year, it will gradually decrease to an average of 6.5% in Q4.
• Mortgage Bankers Association. MBA’s base case says that if Treasury rates fall and the spread narrows, mortgage rates will start at 6.1% at the end of 2024 and end at 5.5% at the end of 2025.
• Matt Vernon, Bank of America Head of Retail Lending. Fed may cut rates in 2024, which could revive the housing market. Yet, any reduction in mortgage rates is likely to be gradual and may begin late in the year.
• Yelena Maleyev, KPMG Economics senior economist. Mortgage rates are predicted to stay below 7% as inflationary pressures ease, and the Federal Reserve is expected to cut rates in the second quarter. However, any unexpected increase in inflation, employment, or wages could delay the rate cuts, causing other interest rates, including mortgage rates, to rise.