Could Mortgage Rates Drop Into the 5% Range in 2024? This Mortgage Giant Just Predicted They Will

Every month, mortgage giant Fannie Mae releases a housing market forecast that contains the agency's best predictions on mortgage rates, new home construction, existing home sales, and more.

In its recently released January forecast, the big news is that mortgage rate expectations have been revised downward. By a lot.

Fannie Mae now expects the average 30-year fixed-rate mortgage to have a 5.8% interest rate by the end of this year. This is a sharp downward revision from the 6.5% rate expectation in the December edition. Plus, Fannie Mae believes rates will keep moderating after that, with a 5.5% projection for the end of 2025.

There were some other positive revisions in the data as well, most of which are likely because of lower expected mortgage rates. For example, the expectation for housing starts (new home construction) in 2024 is now 8% greater than Fannie Mae forecast just a month ago. And the number of existing home sales are expected to rise by 3.1% compared with 2023 levels, while the previous forecast called for nearly flat year-over-year growth.

What this could mean for home buyers and owners

To put it mildly, this could be a big deal for people who want to buy homes. Let's say you're in the market for a home and your budget is $500,000. You plan to put 20% down, so you'll need a $400,000 mortgage loan.

• At the October 2023 peak, mortgage rates were averaging about 8%. A $400,000 mortgage would come with a payment of $2,935 per month for principal and interest (not including taxes and insurance).
• As of this writing (Jan. 19, 2024), 30-year mortgage rates have pulled back to an average of 6.75%. This would lower the payment on a $400,000 mortgage to $2,594. That's already over $340 less per month than the peak, so the market has already seen some relief.
• With a 5.8% rate, the mortgage payment on a $400,000 loan would decline to $2,347. This could make a big difference in housing affordability for many prospective buyers.
• If rates continue to fall to 5.5% by the end of 2025, it would make the payment on a $400,000 mortgage decline to $2,271 per month.

It's also worth noting that this could make mortgage refinancing an attractive option for those who bought homes in 2023. In fact, Fannie Mae's forecast calls for refinancing volume to nearly double in 2024.

Nobody knows for sure

To be perfectly clear, these are just projections. No expert or agency -- even a mortgage giant like Fannie Mae -- knows for sure what is going to happen. At the start of 2022, when rates were just over 3%, no major experts were predicting rates to more than double that year. There are many factors that influence mortgage rates, and it's impossible to know what's going to happen.

Having said that, the relatively sharp decline in mortgage rates since the October 2023 peak and this new forecast are clear signs that rates might be thawing, and housing could continue to get more affordable.