By Robin Rothstein & Chris Jennings | Forbes Magazine
Mortgage rates just can’t seem to get into a sustainable downward groove.
After hitting a 2024 high of 7.22% to start May, the average 30-year fixed mortgage rate has fallen 36 basis points. A basis point is one one-hundredth of a percentage point.
For the week ending June 27, the 30-year fixed rate was 6.86%, according to Freddie Mac.
Many housing market experts don’t expect mortgage rates to recede significantly in the coming months unless the Federal Reserve decides to cut its benchmark interest rate.
Here is how some experts predict market conditions will affect the average 30-year, fixed-rate mortgage in Q2 2024 and beyond:
Freddie Mac: Rates will remain above 6.5% through Q2
Freddie Mac maintains that mortgage rates will stay above 6.5% through the first half of 2024, per its March Economic, Housing and Mortgage Market Outlook forecast. In its May forecast, the mortgage giant anticipates the central bank will cut the federal funds rate only once this year, keeping mortgage rates elevated for the remainder of 2024.
Fannie Mae: Rates will average 7.1% in Q3
Fannie Mae revised its anticipated average 30-year fixed mortgage rate trajectory. In its April housing forecast, Fannie Mae projected rates to average 6.6% in Q3 but has since revised this to 7.1%. Moreover, the May forecast predicts that mortgage rates will average 7% in 2024, up from 6.6%.
“For now, we see rates remaining closer to 7 percent through the end of the year—before trending downward in 2025—but note potential downside to that forecast given recent actual movements in rates,” said senior vice president and chief economist Doug Duncan, in a recent press release.
National Association of Realtors (NAR): Rates will average 6.7% in Q3
NAR expects the 30-year fixed mortgage rate to average 6.7% in its most recent quarterly forecast published in April but decline to 6.5% by the end of 2024, assuming the Fed cuts rates.
“The Federal Reserve is delaying and is cautious about inflation, but 6 to 8 rounds of rate cuts through the end of 2025 are likely to bring the interest rates down from current high levels to match those during the pre-COVID years,” said chief economist Lawrence Yun, in a May press statement. “Do not expect any major declines in mortgage rates, however.”
Bank of America: Rates will decline below 7%
“Bank of America global economists now anticipate the first rate cut in December,” says head of retail lending Matt Vernon. “While there’s still optimism that mortgage rates will eventually drop below 7% in the coming months, inflationary pressures are currently keeping them elevated.”
Mortgage Bankers Association (MBA): Rates will decline to 6.7% in Q3
MBA expects the 30-year fixed-rate mortgage to decline throughout the year, averaging 6.7% in Q3, according to its May Mortgage Finance Forecast. MBA economists expect the Fed to implement a rate cut in September and one more before the end of the year, with the average mortgage rate landing around 6.5% by the end of 2024.
KPMG Economics: Rates will likely stay within the 7% range through Q2
“We could still see one [Fed] rate cut at the end of the year, but any reacceleration in inflation will push cuts even further,” says senior economist Yelena Maleyev. “The bulk of the declines in rates will occur in 2025; mortgage rates could remain close to 7% for the busy spring home-buying season.”
Palisades Group: Rates will stay above 6.25% through 2024
“The market has consistently overestimated the likelihood, timing, and quantity of the Federal Reserve’s rate cuts,” says managing member and chief investment officer Jack MacDowell. “Based on current data, it is hard to envision more than one to two cuts in 2024 and hard to see mortgage rates drop below 6.25%.”
Advisor Credit Exchange: Rates will range between 7% and 7.5% in the coming months
“Until the Federal Reserve can prove to the markets that inflation is under (and remains under) control, inflation will continue to have a magnified impact on the 10-year Treasury and ultimately mortgage rates,” says Bob Smith, head of real estate. “I expect mortgage rates to remain in a bounded range until this gets sorted out and expect minimal impact from any Fed decisions in June.”
Fed Holds Rates Steady, Again: What This Means for Mortgage Rates in 2024
In a move that surprised no one, the Federal Open Market Committee (FOMC) voted unanimously to leave the benchmark federal funds rate unchanged at its June two-day policy meeting and signaled that only one rate cut may come by the end of the year. The federal funds rate is the overnight borrowing rate for commercial banks and credit unions and indirectly influences mortgage rates.
The decision marks the seventh consecutive meeting in which the FOMC has kept its policy rate steady between 5.25% and 5.5%.
Over the past two years, mortgage rates have soared to their highest levels in decades, fueled, in part, by the Fed’s aggressive interest rate policy actions to tame inflation.
Many housing industry experts anticipated the Fed implementing several rate cuts by now, followed by a subsequent decline in mortgage rates. However, thanks to stubborn inflation over the first quarter of 2024 and a surprisingly resilient labor market, policymakers have maintained a “higher for longer” rate stance instead.
The Fed remains cautious about changing the rate while it monitors inflation. During a press conference, (Chair Jerome) Powell reiterated that the Fed remains “strongly committed to returning inflation to our 2% goal in support of a strong economy that benefits everyone.”
So, what does all this mean for mortgage rates?
“The fact that the Fed scaled back the number of rate cuts from three to one is going to disappoint those who were hoping for a summer rate drop,” said Dr. Lisa Sturtevant, chief economist at Bright MLS. “Some homebuyers who have been sidelined by affordability challenges are going to wait until rates come down to buy.”
Despite elevated mortgage rates, Danielle Hale, chief economist at Realtor.com, says buyers can secure a lower rate by comparing lenders or shopping for homes with an assumable mortgage. An assumable mortgage is when a seller allows a buyer to take over an existing mortgage and (typically lower) rate.
Hale says this hack “can result in lower costs and make home buying possible even before mortgage rates trend more meaningfully lower.”
The next two-day FOMC meeting is July 30 and 31. Four meetings remain in 2024.
