After a brief lull in rate adjustments during June, the Federal Reserve’s stance shifted as they announced a 0.25% increase in interest rates in late July. This move propelled the federal funds’ target range to a spectrum of 5.25% to 5.5%. This particular rate hike was strategically executed to mitigate the persisting inflationary pressures, prompting the Fed to enact a total of 11 rate hikes since March 2022. Despite a momentary dip in the annual inflation rate to 3% during June, which seemed to indicate a cooling trend, the trajectory reversed, and inflation saw an upswing once again in July.
Consequently, this upward trend has also permeated mortgage interest rates, with the average 30-year fixed-rate mortgage rate reaching a notable 7.60% by August 18, 2023. This figure demonstrates an approximate 2% surge compared to the same period the previous year, marking the loftiest rate observed in over two decades.
The escalation of mortgage rates has introduced challenges in the realm of homeownership. The increased rates have placed a hurdle in the path of potential new homebuyers, rendering homes less affordable. Concurrently, the attractiveness of refinancing options for existing homeowners has dwindled, given that a significant proportion of them already possess mortgages with rates below the present levels.
The question that looms is the trajectory of mortgage rates in the forthcoming period. Diverse housing market experts offer their insights into the landscape of mortgage interest rates for the remainder of 2023 and extending into 2024. The consensus amongst these experts is that multiple factors, spanning from treasury yields to the dynamics of the 2024 election, exert influence on mortgage rates. However, a unanimous point of agreement revolves around the pivotal role of inflation in steering the course of these rates. Here’s a glimpse into their perspectives.
Selma Hepp, Chief Economist at CoreLogic, a reputable real estate data and analytics firm, posits, “As households exhaust the pandemic-induced savings, spending is poised to decelerate, subsequently tapering the overall economy’s pace. Elevated gas and food prices further contribute to this scenario, a focal point for the Fed. An intervention to alleviate this strain is anticipated in the first or second quarter of 2024, as the Fed reduces rates to lower borrowing costs. Nonetheless, it’s plausible that elevated mortgage rates will persist, potentially ranging between 6.5% to 6.8% by year-end.”
Mike Hardy, Managing Partner at Churchill Mortgage, envisions a downward trajectory for mortgage rates over the ensuing six to twelve months, accompanied by some fluctuations within this downward movement. He predicts that 30-year rates could hover around 5.25%, while 15-year rates may settle at approximately 4.875% within a year.
Jack Macdowell, Co-founder and CIO at Palisades Group, an esteemed asset management firm, offers a nuanced perspective. “While outcomes might diverge, our foundational expectation is a narrowing of mortgage rates by 25 to 50 basis points by the conclusion of the initial quarter of 2024. This prognosis places the 30-year fixed rate mortgage around the threshold of 7%.”
Ralph DiBugnara, Founder of Home Qualified, delves into the evolving nature of real estate activities, indicating a return to more conventional cycles of buying, selling, and refinancing, albeit at a slower pace. He estimates that the 30-year and 15-year fixed rates could average around 7% and 6.375%, respectively, during the first quarter of 2024.
Craig Martin, Executive Managing Director at J.D. Power, offers a stability-oriented outlook. “In the absence of significant market upheavals, it is reasonable to anticipate that interest rates will linger in proximity to current levels over the ensuing six to twelve months.”
In summary, the collective insights of these experts underline the intricate interplay of various factors shaping the trajectory of mortgage rates. While differing perspectives exist, the overarching theme revolves around inflation’s course and its resonance in steering the path of mortgage rates over the span of the coming months and into 2024.
