The latest forecasts predict that mortgage rates will go down in 2024. As inflation has come down, so have mortgage rates. It's likely that consumer price growth will continue to cool down this year.
The Federal Reserve (“Fed”) influences mortgage rates through its control of the federal funds rate, the interest rate at which banks lend to each other. By adjusting this rate, the Fed indirectly affects broader interest rates, including those for mortgages. Lowering rates stimulates borrowing and spending, while raising rates has the opposite effect.
The Fed has indicated that it will start cutting the federal funds rate. This will take some of the upward pressure off of mortgage rates and likely help them fall a bit further. We may even see 30-year rates finally drop back below 6%.
Looking ahead, all eyes are now on the upcoming January 31st, Federal Open Market Committee (FOMC) meeting. According to the CME Group, none of the forecasters predict an increase in interest rates, while 93.3% predict rates will remain the same and 6.7% of forecasters expect rates to decrease. Later this year at the March 20th, FOMC meeting, 62.1% predict the Fed will lower interest rates by 0.25% point and 4.3% predict a 0.50% rate reduction.
Mortgage rates and home prices share an inverse relationship. When mortgage rates are low, borrowing is more affordable, increasing demand for homes and driving prices up. Conversely, higher rates deter potential buyers, reducing demand and placing downward pressure on home prices. This dynamic reflects the fundamental economic principle that the cost of financing influences purchasing power and, consequently, impacts the overall housing market.