Could Mortgage Rates Fall to 6% Next Year?

If you've been planning a big move, but mortgage interest rates got ahead of you, you're probably wondering how long both home prices and rates will remain high. Here, we're going to focus on interest rates by looking at what the professionals have to say.

Is there any chance that 2024 will look better than 2023? Let's take a look.

Historical perspective

It may provide cold comfort, but mortgage rates have been higher -- sometimes, much higher. Here are some examples of what American home buyers have dealt with in the past:

• 1975: 9.05%
• 1979: 11.20%
• 1981: 16.04%
• 1985: 12.43%
• 1991: 9.25%

Depending on what's going on with the economy as a whole, interest rates go up, and they come down again. What we're trying to capture now is a sense of when we might expect them to drop.

Early 2024

The Federal Reserve has indicated that we should expect interest rates to come down in the near future. There's still that pesky issue of inflation to deal with.

Interestingly, the red-hot job market providing Americans with more money in their checking accounts is the primary reason mortgage rates are high. And as long as Americans have jobs and incomes burning a hole in their pockets, inflation will continue to be an issue.

The annual inflation rate was 3.7% for the 12 months that ended in September. That doesn't sound so bad when you consider that inflation hit 9.1% in June 2022. Still, the Fed is committed to bringing it down to 2%.

Bottom line: On the way to that 2% goal, mortgage rates are likely to remain roughly the same or even drift up a bit more.

The rest of 2024

Predictions must typically be taken with a grain of salt, but based on years of watching trends, the following real estate–related associations and funding sources may be on to something.

Mortgage Bankers Association

The industry group for mortgage lending does not expect mortgage rates to drop below 6% until spring 2024. Even more hopeful, the Mortgage Bankers Association believes rates will fall to 5.4% in the fourth quarter of 2024 (October to December).

Wells Fargo

Wells Fargo's forecasting group also predicts that rates will fall below 6%, however, it doesn't expect it to happen as early as springtime. Wells Fargo is saying that rates will be under 6% in the third quarter of 2024 (July to September).

National Association of Realtors

According to the National Association of Realtors, rates will decline to 6% in 2024, giving potential home buyers who currently feel priced out of the market a little more breathing room.

Fannie Mae

The Federal National Mortgage Association, known as Fannie Mae, believes mortgage rates will average 6.5% in 2024, failing to dip below 6% until 2025.

Miscellaneous tips

If waiting on the sidelines until interest rates drop is driving you around the bend, there are a few things to keep in mind.

• Remember that waiting isn't the best move for everyone: As interest rates drop, home-buying interest will increase, making the market more competitive.
• Comfort yourself with the fact that waiting allows you time to save for a larger down payment: The higher your down payment, the less you have to borrow.
• If you're not in a hurry, house hunt in the fall: Once children have gone back to school, households with kids aren't as interested in moving. That may lead to less competition during the fall and winter months.
• Take a look at the new home construction market: Home builders remain anxious to close deals. Home builders may also be able to offer concessions like price reductions or a temporary mortgage rate buydown.

There's no doubt that these are interesting times in the real estate market -- possibly one for the books. In order to open the housing market back up, something is going to have to break up the combination of high prices and high mortgage rates. What that "something" will be is anyone's guess, though.