January and Beyond
Mortgage rate predictions are notoriously unreliable. With that said, Mortgage rates went through a rough patch towards the end of 2023, but they might not change much in January. However, there’s good news for homebuyers in 2024: forecasters expect mortgage rates to fall. But don’t get too excited just yet; the decline won’t necessarily start in January. Instead, it’s likely to happen after the Federal Reserve cuts short-term interest rates. Financial markets are guessing that the first Fed rate cut will occur in the spring after inflation has decreased for several months. So, keep an eye out for that!
Why Mortgage Rates are Expected to Fall in 2024
Mortgage rates are influenced by inflation. When the inflation rate is high, mortgage rates tend to go up; when it’s low, they tend to go down. So, if inflation forecasts are correct, it’s good news for shoppers and mortgage borrowers! According to the Mortgage Bankers Association and Fannie Mae, inflation is expected to slow considerably in 2024, which is excellent news for those looking to buy a home or refinance their mortgage.
The final three months of 2023, the consumer price index averaged above 3%. However, the Mortgage Bankers Association and Fannie Mae expect it to fall below 3% in the first three months of 2024 and continue to drop throughout the year. If the inflation forecasts prove correct, the floor will gradually drop under mortgage rates. But don’t get too excited just yet; the descent might remind you of riding an elevator in a hospital: frustratingly slow. 🙄
Twists at the End of 2023
In contrast, mortgage rates made an ear-popping climb from August through October 2023, then dived in November and into December. The 30-year fixed-rate mortgage was under 7% at the beginning of August, then topped at around 8% in late October — an increase of more than a percentage point in three months. That increase was followed by a plunge to below 6.5% in some of the second half of December — a decrease of about 1.5 percentage points in a month and a half.
These gyrations can be traced to investors’ fears and hopes about the economy. When mortgage rates went up, markets were unnerved by the persistence of economic growth and inflation. Later, investors became convinced that inflation would continue to decline and that the Fed would cut short-term interest rates within a few months, so mortgage rates went down.
What Might Go Wrong
If the forecast turns out to be inaccurate and mortgage rates take a notable turn in either direction, they’re more likely to drop than to climb. This conclusion is based on the assumption that mortgage rates will trend downward for the year. But if mortgage rates go up in January, it will be in response to an unexpected rise in the inflation rate or some other indicator of economic growth. So, keep an eye out for any sudden changes.