Mortgage Rates Rise, but Experts Forecast Declines in 2024

The average rate for a 30-year mortgage loan increased to 6.69% from the previous week’s 6.60%, according to Freddie Mac’s recent report. Although rates remain higher than the averages in 2021 and 2022, the retreat of mortgage costs by more than 110 basis points in the last three months since the October peak of 7.79% is instilling hopes for improved affordability and driving increased activity in the housing market.

This upward trend in mortgage activity is evident as the Mortgage Bankers Association’s (MBA) weekly survey, ending January 19, reported a 3.7% increase in mortgage applications from the previous week. The seasonally adjusted purchase index, measuring new home loans, saw an 8% week-over-week jump. Despite this positive momentum, the unadjusted purchase index remains 18% lower than the same week a year ago, and refinance activity is down by 16% compared to the previous week.

Joel Kan, MBA’s vice president and deputy chief economist, noted that conventional and FHA purchase applications were the primary drivers of the increase, emphasizing that refinance applications remained low due to limited incentives for homeowners at current rate levels.

The rise in mortgage activity aligns with a boost in homebuyers’ confidence, reflected in the latest Home Purchase Sentiment Index (HPSI) surveyed by Fannie Mae in December. The share of respondents believing it is a “good time” to buy a home increased three percentage points to 17% from the previous month. Economists attribute this growing positivity to consumers’ expectations of falling mortgage rates, anticipating a subsequent decrease in home prices.

Mark Palim, vice president and deputy chief economist at Fannie Mae, anticipates a 4% increase in home sales, particularly existing home sales, in 2024. The optimism is further fueled by expectations of a higher pickup, nearly 14%, in 2025 as the impact of lower mortgage rates works through the system.

While economists at Fannie Mae predict slowing economic growth in 2024, leading to rates reaching around 5.8% by the end of the year, the timing of rate cuts from the Federal Reserve may be later than initially expected. Despite the forecasted rate cuts, consumer prices increased in December, suggesting that inflation may persist, leading Federal Reserve governor Christopher Waller to emphasize a cautious approach in the face of economic stability.