Mortgage Rates Could Fall in 2024. Here's Why That Could Make It Even Harder to Buy a Home

There's a reason so many buyers are struggling to purchase a home today. Not only are property values way up on a national scale due in part to a lack of inventory, but mortgages have been expensive to sign since rates started rising in 2022. As of this writing, the average 30-year mortgage rate is 7.02%, according to Freddie Mac. That's a tough pill to swallow when just a few years ago, you could sign a 30-year loan at 3%.

Let's say you're taking out a 30-year fixed $200,000 mortgage. At 3%, you're looking at $843 per month for principal and interest. At 7.02%, that number rises to $1,333.

Given that gap, it's easy to see why homeownership is so unaffordable for so many buyers right now -- especially first-timers who don't have equity in a starter home to put toward a new one.

The good news is that mortgage rates are expected to fall later in 2024. The bad news, though, is that that may not result in any relief for buyers. It could even end up making things worse temporarily.

Why mortgage rates could start to drop

Mortgage rates are elevated right now as part of a broader trend. In 2022 and 2023, the Federal Reserve raised interest rates in an attempt to cool inflation. The central bank's efforts worked to a large degree, and this year, living costs have been rising at a more moderate pace than in recent years.

Because of this, the Fed is expected to start cutting interest rates at some point in 2024. And while we don't know exactly when that will happen, once the Fed lowers interest rates, mortgage rates should start to follow suit. It's not inconceivable that mortgage rates could creep down toward the 6% mark by the end of the year.

Why falling mortgage rates may not help buyers -- at all

In theory, lower mortgage rates should make buying a home more affordable. In practice, what may happen is that falling rates spur a surge in buyer demand, thereby driving more bidding wars across the market. The result? Even higher home prices than what we're seeing today.

Right now, buyers aren't vying for homes the way they were in 2020 and 2021, when mortgage rates were ultra-low. But if rates fall just enough, we could see demand soar again, giving sellers even more of an advantage.

That's why you may not necessarily want to plan to buy a home later in 2024 -- even if mortgage rates drop to a notable degree. Instead, what you may want to do is give the market more time to cool off following what could be a sizable uptick in demand.

Remember, the Fed isn't expected to cut interest rates only this year -- it's expected to continue doing so into 2025, and possibly beyond. Once buyers see that rates are falling steadily, they may not be in such a frenzy to jump on available homes. So waiting until 2025 to buy could mean not only snagging a better mortgage rate but also having less competition to deal with.

In the meantime, there are a few things you can do to set yourself up for success as a home buyer. You can try to boost your credit score so you can qualify for the best mortgage rate available at the time, and you can grow your savings so you're able to make a larger down payment. These moves, combined with a bit of patience, could put you in a great position to become a homeowner.