Are you considering refinancing your home before the end of the year? If so, checking out the professional mortgage rate predictions for 2024 and understanding the factors influencing mortgage rates is essential.
The latest trends in mortgage rates will likely impact how affordable it is to buy or refinance a home and how it affects one’s finances in the long run.
To help homeowners like you make informed refinancing decisions, we’ll take a look at:
- How mortgage rates are determined
- What economic factors can cause higher mortgage rates?
- Provide mortgage rate predictions for 2024
How are mortgage rates determined?
A combination of different factors can influence mortgage rates, including the overall economy, financial markets, and specific characteristics of the borrower.
Here’s a breakdown of the key elements that determine mortgage rates.
The overall economy
The state of the broader economy plays a pivotal role in setting mortgage rates.
When the economy is strong, with rising inflation and robust job growth, mortgage rates tend to increase.
Mortgage rates will likely decrease in a weaker economy with low inflation and high unemployment.
The Federal Reserve’s monetary policy
The Federal Reserve (Fed) does not directly set mortgage rates, but its monetary policy decisions significantly impact them.
- The Fed controls short-term interest rates, such as the federal funds rate, influencing economic borrowing costs.
- When the Fed raises interest rates for many reasons, including efforts to curb inflation or cool an overheating economy, mortgage rates often rise in response.
- The opposite is also true—mortgage rates may decrease when the Fed lowers rates to stimulate economic activity.
Notably, the Federal Reserve is expected to cut interest rates—possibly—as soon as September 2024, which should help push mortgage rates lower.
Bond market movements
The mortgage market is strongly connected to the bond market, specifically the yield on 10-year U.S.
Treasury bonds
Mortgage lenders often use the yield on Treasury bonds as a benchmark for setting their rates. When these bond yields rise, mortgage rates typically follow suit.
This happens because when interest rates go up, investors want to compensate for the higher rates by asking for higher returns on bonds, which leads to higher mortgage rates for people who want to buy homes.
This also happens reversely: Mortgage rates tend to decrease when bond yields fall.
Lender-specific factors
Individual lenders also determine mortgage rates. They evaluate the risk associated with each borrower based on their credit score, loan amount, down payment, and debt-to-income ratio.
Because they present less risk to lenders, borrowers with higher credit scores and down payments above minimum requirements usually qualify for lower mortgage rates.
On the other hand, borrowers with lower credit scores or higher loan-to-value ratios may face higher mortgage rates.
Mortgage rate predictions for 2024
Understanding how mortgage rates are determined is essential, but it’s equally important to consider what lies ahead. Here’s a look at the mortgage rate predictions for 2024:
Gradual decline in rates
Mortgage rates are expected to decline gradually through the rest of 2024. However, rates will likely remain above 6% for most of the year.
End-of-year projections
By the end of 2024, several major forecasts predict 30-year fixed mortgage rates will be in the 6.6% to 6.9% range:
- Fannie Mae: 6.7% in Q4 2024
- Mortgage Bankers Association: 6.6% in Q4 2024
- National Association of Realtors: 6.7% in Q4 2024
Interest rate cuts
The Federal Reserve is expected to begin cutting interest rates—possibly as soon as September 2024—which should help push mortgage rates lower.
No return to ultra-low rates
Rates are not expected to return to the ultra-low levels seen during the pandemic (below 3%) anytime soon.
Looking ahead to 2025
Forecasts suggest that rates could fall to the 6-6.5% range, with some predictions as low as 5.5-6% by late 2025
Housing market challenges
While rates are expected to decline, the housing market may remain challenging due to high home prices and limited inventory.
What type of economic factors cause higher mortgage rates?
Several economic factors can lead to an increase in mortgage rates, including the following.
Inflation
Inflation drives up mortgage rates because it decreases the purchasing power of money, leading lenders to charge more interest to compensate for the decreased value of the money they will get back.
As inflation expectations increase, mortgage rates also rise as lenders aim to protect their returns from the effects of inflation.
Economic growth and employment
As indicated above, strong domestic economic growth and low unemployment can increase mortgage rates as consumer demand, prices, and wages increase. This can cause inflation, prompting the Fed to raise interest rates.
As a result, mortgage rates may rise with a growing economy. Homeowners should consider the broader economic context when refinancing, as a booming economy may result in less favorable mortgage rates.
Federal Reserve policy changes
The mortgage market closely watches the Federal Reserve’s monetary policy decisions.
In turn, the Fed will watch what the mortgage market is doing and may alter policy accordingly.
Mortgage rates often increase when the Fed signals a tightening of monetary policy by raising short-term interest rates or reducing its bond-buying programs.
These policy changes are typically made to control inflation and ensure the economy does not grow too quickly.
Global economic events
Global economic events, including geopolitical tensions or financial crises, can influence U.S. mortgage rates.
For example, a financial crisis may lead investors to seek the relative security of U.S. Treasury bonds, lowering yields and reducing mortgage rates.
In contrast, improved global economic conditions or disruptions in global supply chains could raise mortgage rates in the U.S.
Mortgage rates predictions for 2024—final thoughts
With mortgage rate predictions for 2024 suggesting rates will gradually decline but remain above 6% for most of the year, homeowners should stay informed about economic indicators, Federal Reserve policies, and global events.
By doing so, you’ll be better able to decide when to refinance and secure the most favorable mortgage rates.
Tailored lender matching for your refinance
Begin your refinancing journey confidently—reach out to us and let My Perfect Mortgage match you with the lender best suited to your unique situation.
Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
