Could Mortgage Rates Come Down in 2024?

Mortgage rates have risen sharply from about 3% at the start of 2022 to nearly 8% today. And while the ultra-low mortgage rates we saw for much of 2020-2021 aren't likely to return anytime soon, many would-be home buyers are wondering when the cost of getting a mortgage loan will come down and make homeownership more affordable.

With that in mind, here's what makes mortgage rates rise and fall, where some of the top mortgage organizations and experts see rates heading, and why mortgage rates are so hard to predict.

Why do mortgage rates rise and fall?

It might seem logical that mortgage rates rise along with the Federal Reserve's interest rate moves. After all, the Fed has raised the benchmark federal funds rate by 5.25 percentage points over the past couple of years, and mortgage rates have increased from the lows by approximately the same amount.

However, it's important to be aware that mortgage rates are not directly tied to the federal funds rate, or any other benchmark interest rate for that matter. But they don't exactly have a mind of their own, either. They tend to move in the same direction as certain benchmark interest rates, but there are other factors. Supply and demand are big factors that cause short-term moves in mortgage rates, and inflation expectations play a role as well. And other aspects of the Federal Reserve's monetary policy play a role.

For example, when the COVID-19 pandemic first started, the Fed started purchasing mortgage-backed securities (MBS) to stimulate the economy and keep liquidity in the system, and had purchased more than $1.37 trillion in MBS from March 2020 through April 2022 -- and this definitely contributed to the sub-3% mortgage rates we saw during that period.

What do the experts predict?

As of Oct. 11, 2023, the average 30-year fixed mortgage rate in the United States is 7.83%, the highest level in more than two decades. And the good news is that most experts seem to think mortgage rates will fall in 2024. Many predict that inflation will decline and the Fed will start cutting rates, both of which would be conducive to lower mortgage rates. But there isn't a great deal of agreement on how fast they could fall. (Note: All of these are referring to 30-year, fixed-rate mortgages.)

• Mortgage giant Fannie Mae sees rates falling significantly to 6.8% in the first quarter of 2024 and continuing to decline gradually throughout the year, reaching 6.3% in the fourth quarter.
• The National Association of Realtors sees the average 30-year rate falling to 6% by the end of 2024.
• The Mortgage Bankers Association sees rates hitting 5.4% during the fourth quarter.
• A Navy Federal Credit Union economist predicts that 30-year mortgage rates will start 2024 in the 7.25%-7.5% range, and fall to a range of 5.5%-6% by the end of the year.
• A senior Morningstar economist sees a sharper decline, with rates declining to about 4.5% by 2025.

So, one key takeaway is that none of the major mortgage-related organizations see rates going up next year. However, there's a chance the Fed will have to keep hiking benchmark rates if inflation proves harder to control than expected (so far, this has been the case). And if this happens, it's entirely possible that mortgage rates will increase even further in 2024.

Where will mortgage rates be at the end of 2024?

As we've seen, most experts and organizations predict that mortgage rates will be significantly lower at the end of 2024 than they are today. But it's by no means a certainty, and nobody knows for sure where rates will end up. 

There's a solid case to be made that we could see sub-5% mortgage rates by the end of 2024 if inflation gets under control quickly and the Fed starts cutting rates. But rates of 8%, 9%, or even higher are entirely possible if the Fed must continue raising rates to keep inflation in check. 

Having said all that, you don't necessarily need to let higher mortgage rates discourage you from becoming a homeowner. Assuming you can afford the monthly payment, you can always refinance the loan quite easily if rates go down. Plus, it's not as if rent has become any cheaper. If homeownership seems like the best move for you (aside from high borrowing costs), it could still be a good idea to get rate quotes from some top mortgage lenders and get the process started.