Redfin Says Home Prices Will Fall in 2024. What About Mortgage Rates?

Home prices have soared over the past few years, and mortgage interest rates have risen rapidly, making home price affordability the worst in about four decades.

But the latest 2024 housing predictions from Redfin indicate that relief for home buyers has already begun and may continue throughout the year.

The company recently said home prices would decline by 1% in the second and third quarters, with no change in the rest of the year. And while that might not be a massive shift in home prices, considering the average home price has jumped 27.7% over the past three years, it's certainly welcomed news for potential home buyers.

Redfin says the drop in home prices will come as more homeowners list their houses for sale. Zillow echoed this recently, noting that homeowners already locked into low interest rates will change their minds about waiting for low rates to return and will instead accept current rates as the new normal and list their homes.

Adding to the good news for potential buyers is that Redfin believes mortgage rates, which have already begun to decline recently, will continue to slowly slide lower.

Interest rates will be lower, but still above 6%

Redfin thinks the Federal Reserve will begin cutting interest rates at the beginning of the summer and make two or three cuts this year, which will push down mortgage rates, but still keep them above 6%.

And Redfin isn't the only one predicting that mortgage rates will retreat. The Mortgage Bankers Association said a few months ago that rates would be 6.1% by the end of 2024 and could fall to 5.5% toward the end of 2025.

Interest rates have already begun falling recently, as the market anticipates the Federal Reserve is finished hiking the federal funds rate. That's already provided some relief for potential home buyers and has spurred some renewed interest in the housing market.

This makes it all the more important for potential buyers to shop around when looking for a mortgage lender right now. Taking the time to talk to a few lenders could help you score a lower interest rate.

I spoke to a mortgage lender months ago who said a potential client of his got a better rate with another lender, and told me that his company may not always be able to offer the best rates. Even he didn't know how his competition could offer a better rate.

Two things to do to prepare to buy a house

Buying a home is one of the most significant expenses you'll ever take on, so your personal finances should be in the best shape possible before you commit to it.

Here are two big steps to take to get ready for an improved housing market:

• Save as much money as you can: This may seem like an obvious move to make before buying a home, but there will be many costs to buying a house that go beyond your down payment. For example, you'll likely have closing costs, property tax payments, insurance payments, and moving costs. While some expenses may be rolled into your monthly mortgage payment, moving expenses and household repairs won't be.
• Pay off debt: This is as important as building up your savings because lenders want to see that you're not overextending your finances. If you have a car loan and a few credit card accounts, paying most or all off before applying for a mortgage could help you receive a larger home loan and a better interest rate. Rocket Mortgage® says most lenders want a debt-to-income ratio of 43% or less.

As a potential home buyer, I'm keeping a close eye on mortgage rates and following my own advice about paying off debt and saving money. I've seen a shift in my local housing market, albeit a small one, and noticed home prices are beginning to cool in some neighborhoods.

If these patterns continue, and rates continue to fall, maybe those of us waiting on the sidelines will finally be able to remove the "potential" designation from our potential home buyer label. Here's to hoping for better deals in 2024.