The dream of falling mortgage rates in 2024 has hit a snag. Recent economic data, especially stubborn inflation, has thrown a curveball at prospective homebuyers in May. Let's explore what experts predict for mortgage rates for this month, i.e.; May 2024, and the key factors that could shake things up.
As of May 14th, 2024, the average 30-year fixed-rate mortgage sits at a hefty 7.21%, decreasing 12 basis points over the last week. This is significantly higher than earlier expectations for 2024, which hovered around 6.5%. The Federal Reserve's response to inflation is a key driver of this increase. In order to combat rising prices, the Fed has signaled a willingness to raise interest rates, which in turn affects the rates that lenders offer on mortgages.
Expert Predictions:
The forecast for May is divided. Some experts, like those at Bankrate, predict rates could climb even higher, potentially reaching 8% if inflation continues to be a major concern [Bankrate]. They point to recent economic data, such as a higher-than-anticipated Consumer Price Index (CPI) report, as evidence that inflation might be stickier than previously thought. This could lead the Fed to take a more aggressive stance on interest rates, pushing mortgage rates even higher.
Others, like the Mortgage Bankers Association and the National Association of Realtors, offer a slightly more optimistic outlook, placing the average rate for the entire second quarter (including May) around 6.6% [The Mortgage Reports]. They acknowledge the influence of inflation but believe that other factors, such as a potential slowdown in the housing market, could put downward pressure on rates.
Factors Influencing Predictions:
Several factors are contributing to the current volatility in mortgage rates:
Inflation:As mentioned above, stubbornly high inflation rates are forcing the Federal Reserve to re-evaluate its plans for interest rate cuts. This, in turn, affects mortgage rates. The Fed's response to inflation will be a major factor in determining the direction of mortgage rates in May and beyond.
Global Economic Conditions:A shaky global economic picture adds to the uncertainty, impacting investor confidence and influencing mortgage lenders' borrowing costs. If global economic conditions worsen, it could lead to a flight to safety, driving up demand for U.S. treasuries and potentially lowering mortgage rates. However, a global economic slowdown could also dampen the housing market, putting upward pressure on rates.
Geopolitical Events:Ongoing geopolitical tensions, such as the war in Ukraine, can create market fluctuations, indirectly affecting mortgage rates. Geopolitical instability can lead to increased risk aversion among investors, which can impact mortgage rates in unpredictable ways.
A Look Ahead:
While May might not offer significant relief for homebuyers, the latter half of 2024 could see a gradual decline in rates, albeit not as dramatic as initially anticipated. Here's a breakdown of some expert forecasts for the rest of the year, along with additional context:
Freddie Mac:Expects rates to stay above 6.5% throughout Q2 and Q3 [Forbes]. This suggests that rates might not fall below 6.5% until sometime in October or later, unless there's a significant shift in economic conditions.
Fannie Mae:Projects a 30-year fixed rate of 6.4% by year-end [Forbes]. This aligns with the overall expectation of a gradual decrease in rates, but it's important to remember that this is just an average. Individual borrowers may qualify for slightly higher or lower rates depending on their creditworthiness and other factors.
National Association of Realtors:Believes rates will hover between 6% and 7% for most of 2024 [Forbes]. This forecast acknowledges the uncertainty surrounding the housing market and the potential for rates to fluctuate within a specific range throughout the year.
What This Means for You:
If you're considering buying a home in May, it's crucial to stay informed about current rates and economic developments. Here are some tips:
Shop around:Get quotes from multiple lenders to find the best possible rate.
Consider a shorter loan term:A 15-year fixed-rate mortgage typically offers a lower interest rate than a 30-year loan.
Improve your credit score:A higher credit score can qualify you for a more favorable rate.
Factor in additional costs:Don't forget to factor in closing costs and other expenses when calculating your monthly mortgage payment.
The housing market can be challenging to navigate, especially with fluctuating interest rates. By staying informed, working with a qualified mortgage professional, and being prepared for various scenarios, you can increase your chances of securing a home loan that fits your budget.
Mortgage interest rates are on the rise again, with the 30-year fixed-rate mortgage recently crossing the 7% mark, according to the Freddie Mac Primary Mortgage Market Survey®.
Trading Economics offers a more optimistic outlook, predicting a rise to 5% in 2023 before falling to 4.25% in 2024 and 3.25% in 2025. This forecast is supported by Morningstar's analysis, which projects rates between 3.75% and 4%.
If the Federal Reserve cuts interest rates too quickly, it could spur inflation, erasing all the work the central bank has done to curb increasing prices over the past couple of years. So, any rate cuts in 2024 are likely to be minimal and unlikely to result in mortgage rates dropping to 3%.
If you feel like you've received the best rate possible and fear a rate increase, lock it in now. But if you're willing to gamble that the rate will drop in the coming days or weeks, lenders could let you wait and provide a lock-in at a later date.
Ultimately, we expect growth in mortgage originations, including some improvement in the refinance segment. We forecast 2024 total single-family mortgage originations to be $1.98 trillion in 2024 and $2.44 trillion in 2025, up from $1.50 trillion in 2023.
In summary, buying a house in California in 2024 may be a good time for some buyers, depending on their personal and financial situation. The housing market is expected to rebound from a sluggish year in 2023, with more supply and demand, higher prices and affordability, and lower mortgage rates and inflation.
Keep in mind that inflation is still a factor, and mortgage rates may continue to hover around 6%. Here are some predictions for 2025 from key players and industry associations in the mortgage space: Fannie Mae: 6.1% Mortgage Bankers Association: 5.9%
Currently, over six out of 10 purchase and refinance loans are at rates below 4%, according to Freddie Mac. Those ultra-low rates are unlikely to return anytime soon—if at all—resulting in limited motivation for many homeowners to refinance.
In today's housing market, homebuyers should have realistic expectations. Experts predict mortgage rates to inch closer to 6% by the end of the year as inflation cools and the Federal Reserve starts to cut interest rates. Record-low mortgage rates aren't in the cards again, and that's likely for the best.
Inflation has receded, but the Fed has signaled it wants more positive data before pulling the trigger. In March 2024, the central bank predicted three quarter-point cuts by the end of the year. As time goes on, however, that has become less of a certainty.
Also, mortgage rates are still much higher than we've been used to in recent years. On 30 May 2024, the average 2 year fixed mortgage rate is 5.80%. While this is a significant drop from its July 2023 peak of 6.86%, it's still much higher than December 2021 when was 2.34%.
While the Fed maintained its target rate in the 5.25 percent to 5.50 percent range at its June 2024 meeting, the central bank hasn't yet declared victory in its fight against inflation. However, it seems the Fed is done raising its target rate in this cycle and forecasts one rate reduction later in 2024.
Will HELOC Rates Go Down in 2024? The Federal Reserve is expected to cut interest rates several times in 2024, which could lead to a change in HELOCs' benchmark rates and cause their interest rates to go down as well. However, there's no guarantee that rates will go down—it depends, in part, on whether inflation drops.
There are no sources for officially projected interest rates in five years, but the Mortgage Bankers Association does predict rates on 30-year mortgages will drop to 5.9% by the end of 2025. Fannie Mae predicts a 6.6% rate.
Adding to the chorus of potential decline is Statista's forecast, which suggests a 1.6% drop in the 30-year fixed rate by 2026. Their prediction rests on the assumption that the 10-year treasury constant maturity rate will also decline, which has historically correlated with movements in mortgage rates.
However, increases should slow between 2024 and 2026, and rates may even decline in 2027. Among the factors that could impact mortgage rates in the next 5 years are inflation, Federal Reserve policy, and economic growth. Homebuyers should consider locking in a low mortgage rate now, as rates are expected to rise soon.”
Auto loan rates for new and used vehicle purchases fell in the first quarter of 2024 to 6.73% and 11.91%, respectively, down slightly from the 15-year highs we saw at the end of 2023, according to Experian.
Introduction: My name is Lidia Grady, I am a thankful, fine, glamorous, lucky, lively, pleasant, shiny person who loves writing and wants to share my knowledge and understanding with you.
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