The year’s first Federal Open Market Committee meeting concludes today. The Federal Reserve’s two-year battle against inflation, which made it more expensive to finance just about anything, is coming to a close. But while economists and market watchers don’t expect more interest rate hikes, they don’t expect rate cuts either.
Although the Fed doesn’t directly set mortgage rates, its aggressive rate-hike policy served to put a lock on the housing market. It left homebuyers coveting the bargain mortgage rates of the pandemic era.
If inflation continues to decelerate and the central bank carries out three future rate cuts, housing market experts predict some modest gains, including the potential for sub-6% mortgage rates and increased housing supply. Mortgage rates have already fallen more than 1% in anticipation of interest rate cuts.
Will 2024 bring the finale of the high-interest rate saga? Will it be a much-needed shot in the arm for borrowers? If you’re in the market to buy a home this year, and you’re tracking mortgage rates, let’s dig in to see what experts predict.
Read more: Mortgage Rate Forecast: Experts Say Rates Could Fall Below 6% This Year
Why won’t the Fed cut rates at the January meeting?
Since early 2022, the Fed has been working to ease price pressures by increasing its short-term interest rate, the federal funds rate. When that rate gets raised, and the banks respond by making consumer borrowing more expensive, there’s a ripple effect on the economy. The Fed’s monetary policy intends to reduce demand and drive down prices, which sounds clear-cut in theory but is far messier in practice.
It’s a balancing act. The Fed wants policy to be restrictive enough to bring inflation down to its 2% annual rate target, though not so much that the economy spirals into a recession. And as long as economic uncertainty is the word on the street, the Fed is more likely to wait until it’s clear inflation is under control before it makes any big moves.
What experts are saying
“CPI inflation is still above 3%. The Fed wants to see it close to 2% before the actual cut.”
- Lawrence Yun, chief economist at the National Association of Realtors
“It appears that, due to a strong US economy, the Fed may not be so quick to cut rates at their next meeting.”
- Valerie Saunders, president National Association of Mortgage Brokers
“The Fed is being very cautious as it navigates the potential for future rate cuts. While it doesn’t want to leave rates high forever, it doesn’t want to cut them prematurely and risk inflation spiking again.”
- Jacob Channel, senior economist at LendingTree
“They won’t start cutting rates until there is more evidence that the rate of inflation continues to decline towards the 2% goal rate. Stronger-than-expected consumer spending and employment figures are likely to push out any rate cuts until the summer or later.”
- Melissa Cohn, regional vice president at William Raveis Mortgage
“They should cut at least 0.75% in January, but they won’t.”
- Logan Mohtashami, lead analyst at HousingWire
“While considerable progress has been made, the Fed is still waiting for more evidence that inflation is on a sustainable downward path. Since the economy doesn’t appear to actually need lower rates to help lift economic growth, the Fed can afford to be patient.”
- Keith Gumbinger, vice president of mortgage siteHSH.com
When will the Fed start cutting interest rates?
A big part of the waiting game is tracking data. Fed officials, investors and housing market professionals have their eyes glued to the economic data released between each Fed meeting. It’s not just inflation data. Labor data -- jobless claims, wage growth, etc. -- are also important to the Fed.
Most experts think the Fed won’t start cutting rates until mid-March at the earliest, or possibly at the start of May, after several more months of collecting data.
What experts are saying
“Without a crystal ball, I can only go by what economists predict, and some are predicting March, some May… It really depends on the health of the economy.”
- Valerie Saunders, president National Association of Mortgage Brokers
“March is too early to expect a rate cut. The pace of economic activity appears to have remained rather resilient, and inflation remains a bit too high. We think the earliest the FOMC will cut rates is in May.”
- Jay Bryson, chief economist at Wells Fargo
“They will go slow this year until they see jobless claims rising in a wrong way. March is in play for the first rate cut.”
- Logan Mohtashami, lead analyst at HousingWire
“There is a chance that the first cut in rates could come as early as the March 19-20 meeting, but the April 30-May 1 seems more likely at the moment, and that provided that core inflation takes another step or two down by then.”
- Keith Gumbinger, vice president of mortgage site HSH.com
“Rate cuts mean lower rates. Unfortunately, we are probably going to have to be patient for the first cut. Hopefully, by the summer of this year, the Fed will start making rate cuts.”
- Melissa Cohn, regional vice president at William Raveis Mortgage
Will interest rate cuts mean lower mortgage rates?
While many hoped 2023 would be the year for lower mortgage rates, it was the opposite, marking one of the most unaffordable housing markets in decades. Inflation remained stubbornly hot, home prices continued to soar and mortgage rates inched even higher -- surging above 8% in early fall.
Though mortgage rates may not return to the sub-3% range, they are expected to steadily decline to the low 6% range throughout the year as the Fed begins to slash interest rates. Other factors, such as what’s happening in the bond market or on the geopolitical stage, will also impact mortgage rate movement.
What experts are saying
“The Fed doesn’t directly set mortgage rates, but they do have an influence on them. Because of this, cuts in the Fed’s target interest rate will probably mean lower mortgage rates… If all goes well, by the time 2025 comes around, we could see mortgage rates closer to 6%, or maybe even lower. But, unfortunately, there’s no guarantee.”
- Jacob Channel, senior economist at LendingTree
“I expect we will end the year with rates at about 6% to 6.2% -- much higher than during the pandemic but still relatively low by historical standards.”
- Lisa Sturtevant, chief economist at Bright MLS
“As the Federal Reserve holds interest rates steady before beginning to slowly cut rates in May, the spread on the 30-year fixed-rate loan and the 10-year Treasury bond will normalize, and mortgage rates gradually will fall.”
- Matthew Walsh, housing economist at Moody’s Analytics
“Mortgage rates will continue to settle provided that inflation continues to move to the Fed’s 2% core PCE goal and the Fed continues to signal that they will be lowering rates on a more or less regular basis.”
- Keith Gumbinger, vice president of mortgage site HSH.com
“I believe there is a consensus in the industry that 2024, 2025 and 2026 will be positive for rates and consumers.”
- Valerie Saunders, president National Association of Mortgage Brokers
Homebuying advice for 2024
Elevated mortgage rates are just one issue plaguing today’s housing market. A lack of housing supply, especially regarding existing inventory, has kept upward pressure on home prices. Many homeowners have been reluctant to sell because it would mean trading in their low mortgage rates (which are below 5%). But as mortgage rates steadily trend down in 2024, and more owners start listing their homes, there are likely to be more affordable options in some markets.
Rather than timing your plans and purchases based on Fed announcements or other economic trends, experts recommend focusing on two key fundamentals:
Make a homebuying budget and stick to it: Creating a realistic homebuying budget can help you decide if you’re able to handle the costs of homeownership, and provide you with some figures for how large your mortgage should be.
Shop around for mortgage rates: Each home loan lender offers different mortgage rates and loan terms. Comparing offers from multiple lenders can help you get the best rate for your situation. If you can’t snag a low rate but are ready to buy, you can always refinance down the road.
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