Mortgage rates are rising, but experts still expect them to fall until 2024

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The average interest rate on a 30-year mortgage loan rose to 6.69% from 6.60% the previous week, according to Freddie Mac on Thursday. Mortgage costs have fallen more than 110 basis points over the past three months since a peak of 7.79% in October.

This trend raises hopes for improved affordability as prices are on the verge of falling despite a slight rise this week.

While rates are still hovering around the mid-6% – well above the average in 2021 and 2022 – consumers have become increasingly active in the housing market. More buyers are applying for mortgages, indicating a belief that home prices will decline along with mortgage rates.

“Our home sales, especially existing home sales, [forecasted] “We’re going to be up about 4% this year,” Mark Ballem, vice president and deputy chief economist at Fannie Mae, told Yahoo Finance. “We have a slight increase in 2025, about 14%, because by then, lower mortgage rates would have worked their way through the system.”

Homebuyers see a glimmer of hope

Homebuyers are returning to the housing market with the level of mortgage applications up 3.7% from the previous week, according to the Mortgage Bankers Association (MBA) in its weekly survey ending January 19.

The seasonally adjusted purchase index – which measures new home loans – jumped 8% on a weekly basis. However, the unadjusted purchase index remains 18% lower than the same week last year, and refinancing activity is also down 16% from the previous week.

“Conventional and FHA applications drove most of the increase last week as some buyers moved in early in the season,” said Joel Kahn, MBA vice president and deputy chief economist. “Refinancing applications declined over the week and remain at low levels. There is still little incentive for homeowners to refinance with interest rates at these levels.”

The rise in buyer mortgage activity coincided with increased homebuyer confidence. Americans are feeling more optimistic about the housing market, according to Fannie Mae’s latest Home Purchasing Confidence Index (HPSI) conducted in December. The percentage of respondents who believe now is a “good time” to buy a home rose three percentage points to 17% from 14% the previous month.

Economists attributed the increased positivity to consumers’ belief that mortgage rates will fall, leading to lower home prices.

“Mortgage rate optimism increased significantly this month, with a high percentage of consumers anticipating a lower mortgage rate over the next year,” Ballem said. “A more optimistic outlook for rates among consumers may indicate an expectation of easing home affordability pressures in 2024.”

Americans are feeling more optimistic about the housing market, according to Fannie Mae’s latest Home Purchasing Confidence Index (HPSI) conducted in December. (Ferrentright via Getty Images)

Rates are expected to fall below 6% by the end of the year

Fannie Mae economists forecast that slower economic growth in 2024 will cause interest rates to fall to about 5.8% by the end of the year.

“part of [the rate cut] “The slower growth we’ve been seeing this year, part of it is the Fed’s easing,” Doug Duncan, chief economist at Fannie Mae, told Yahoo Finance. [the expectation of] The Fed is cutting interest rates four times this year.”

But the first cut may come later than expected. Consumer prices rose 0.3% month-on-month and 3.4% year-over-year in December. Overall price growth remained above the Fed’s 2% target even after interest rate hikes last year, suggesting inflation is more stable than previously thought.

“With economic activity and labor markets in good shape and inflation gradually falling to 2%, I see no reason to move as quickly or cut as quickly as in the past,” Federal Reserve Governor Christopher Waller said last week. In a speech he delivered at the Brookings Institution in Washington.

Rebecca Chen is a reporter at Yahoo Finance and previously served as an investment tax certified public accountant (CPA).

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