2024 Interest Rates

There were several important announcements in the December 2023 Federal Reserve meeting.

Here are three short, info-packed articles to consider if you buy or sell in 2024.

1. “What Fed Rate Cuts Mean for Home Buyers in 2024” 2. “This Mortgage Rate Magic Number Would Reignite the U.S. Housing Market” 3. “Fed Dot Plot Shows Central Bank Will Cut Interest Rates by 0.75% in 2024” Moving can be a daunting process. We are available to schedule a pre-strategy meeting to help you make a smooth move transition. Call us!

Happiness and Blessings, Liz, Louis & Debra Moore RE/MAX Alliance YOUR HOME IS TOO VALUABLE TO LEAVE TO CHANCE

Getting a mortgage should be slightly less painful in 2024.

On Wednesday, the Federal Reserve said it expected to cut interest rates three times next year. The Fed’s forecast brings a dose of holiday cheer to hopeful home buyers who have felt squeezed out of the market.

If you have been in the hunt for a new home, but couldn’t stomach mortgage rates pushing 8% this year, the Fed’s move will make your mortgage payments cheaper. Though the impact won’t be immediate, rates are nearly certain to come down if the Fed sticks to its forecast.

For those who did get a mortgage at a higher rate this year, the math on refinancing could become a no-brainer.

And if you have been reluctant to sell, lower rates could mean a much hotter market this spring.

Over the past two years, a string of rate increases by the Fed stung hopeful buyers by making mortgages much more expensive. At one point recently, the average 30-year fixed-rate mortgage was above 8%. Just a few years ago, a mortgage under 3% was possible.

The difference between an 8% mortgage and a 3% mortgage on the same 30-year $500,000 loan is about $1,560 a month, according to Ted Rossman, a consumer-spending analyst at Bankrate.

To be fair, the mortgage market doesn’t work as quickly as the stock market.

After the Fed decision, the average 30-year fixed-rate mortgage was 6.95% as of Dec. 14, according to Freddie Mac. But mortgage rates should come down gradually and continue to decline throughout the year to the mid-6% range, said Redfin economist Chen Zhao.

Here’s what home buyers and homeowners might want to consider right now:

Will interest-rate cuts make homes more affordable?

Prospective home buyers should generally be pleased by the Fed’s announcement. Higher mortgage rates had a chilling effect on the home market, and the Fed is now on a path to lower rates sooner than expected, economists said.

The Fed doesn’t set mortgage rates directly, but rate cuts lower the yield on the 10-year Treasury, which in turn would lower the cost of a mortgage.

In addition to simply lowering your monthly costs, lower rates should also convince more homeowners to sell, offering buyers more choice. If supply increases more than demand, then prices could even drop a small amount, said Zhao.

Buyers should manage their expectations, however. We are unlikely to see the 3% mortgage rates that were available in the pandemic-era soon.

Aspiring buyers will also still likely face a shortage of desirable homes for sale as home building remains relatively low and many existing owners are reluctant to part with the low rates they locked in years ago, say economists and consumer analysts.

Falling rates would also mean buyers could have more competition.

“Home buyers should be mindful of the fact that if they are hoping to buy a home as soon as rates fall, they aren’t the only ones,” said Matt Vernon, head of consumer lending at Is it better to wait a bit longer for rates to fall, say to the end of 2024?

The overwhelming guidance from financial advisers is to not try to time the housing market.

Consider your personal finances above all else when deciding whether or not to buy, said Erik Baskin, a financial planner in Dayton, Ohio.

If you have a stable job, little consumer debt, and it is important to your family to live in a certain area, it might make sense for you to buy right away, he said.

If this means your mortgage rate is high, remember that you might be able to refinance to a lower rate later.

For now, the key is to position yourself to act quickly when the right house does come along. In advance of making an offer, buyers can check their credit score and history to ensure that there aren’t any errors and research various loan options, said Emily Irwin, senior director of advice for What do the rate moves mean for homeowners who want to refinance?

About 82% of U.S. homeowners have mortgages with an interest rate below 5%, according to Redfin.

This means that even if mortgage rates fall to between 5% and 6% next year, a majority of mortgage holders might not benefit from refinancing, said Catherine Swanson, associate director of home and mortgage at Credit Karma.

To make refinancing worthwhile, consider how the closing costs and the break-even point—the time it will take you to recover the money it costs to refinance—will affect your overall finances, said Vernon at Bank of America. The closing costs on a mortgage refinance for a single-family home averaged $2,375 in 2021, according to ClosingCorp.

The other thing to keep in mind is that rates might be falling steadily. If you jump to refinance at 5.5% and rates fall below 5% a few months later, you might regret it.

Preston Caldwell, chief U.S. economist at Morningstar, said those looking to refinance might be better off if they wait until mortgage rates are back below 5%.

Given the fees, you don’t want to refinance above 6% and then have to repeat the process when rates fall further, he said.

What else do home buyers need to consider in 2024?

There is also an impact on rental prices thanks to the Fed and the past few years of building. Redfin’s Zhao said 2024 is a year where rents are unlikely to rise and might fall a bit in some places due to new construction.

The median U.S. asking rent declined 2.1% year over year in November to $1,967, according to Redfin.

If a buyer is having a hard time finding the right home, renting might be a more attractive option than in other years, she said.

Write to Veronica Dagher at Veronica.Dagher@wsj.com

With U.S. interest rates at a 22-year high, home buyers and sellers have been on the sidelines, slowing sales to the most sclerotic pace in more than a decade.

Activity will start to rebound once rates decline, but many are wondering how low rates must go before consumers resume buying and selling en masse. Is there a “magic” mortgage rate that will finally kick-start the torpid housing market?

Absolutely, some industry professionals say. “I told my team, ‘the moment rates dip below 5% again, even if it’s 4.99%, cancel your vacation, because we’re going to have the hottest market we’ve had in years,’” said Ken Baris, CEO of Berkshire Hathaway Home Services in Livingston, New Jersey. “As rates go down, buying power increases significantly.”

A September survey by U.S. real-estate industry consultants John Burns Research & Consulting pinpointed that magic number at 5.5%. Nearly three-quarters of respondents who plan to purchase their next home with a mortgage said “they are not willing to accept” a mortgage rate above that 5.5% figure, the company reported.

“Consumers are stuck on low mortgage rates … and still believe a sub-5% mortgage rate is ‘normal,’” the survey’s authors wrote. Still, “consumers aren’t just stuck in the past; many told us they simply couldn’t afford the mortgage payment a rate above 5.5% would entail.”

A 5.5% mortgage rate seems rather optimistic, but rates are falling. The Federal Reserve held interest rates steady at its policy meeting earlier this week for the third time in a row, and three cuts have been penciled in for next year.

The news caused the Freddie Mac fixed-rate 30-year mortgage to drop below 7% to 6.95% this week. Meanwhile, Realtor’s latest housing forecast pegged mortgage rates to end next year at around 6.5%.

‘Patience Is Waning’ Some real estate agents and banking executives paint a more complex picture than a straight “magic number.”

“Historically, low interest rates tended to make borrowing more attractive and encouraged home-buying activity,” Matthew J. Vernon, the head of consumer lending at Bank of America in Charlotte. But there are a lot of other factors that affect activity, “including the overall economic climate, consumer confidence, market conditions and affordability.”

While some consumers play a waiting game with interest rates, many are losing patience―and are eager to re-enter the market, Vernon said.

An October report from Bank of America found 62% of prospective home buyers were comfortable waiting for rates to fall before moving forward on a purchase. But that was a steep decline from April, when 85% of the same respondents said they would wait until rates declined.

“There is still a core need for homeownership as a part of the American dream, and patience is waning,” Vernon said.

And the length of the waiting game matters. The “magic” rate to spur activity depends how long people hold off for them to come down, said Michael Golden, co-CEO of @properties | Christie’s International Real Estate in Chicago.

“The longer rates are higher, the less they have to come down for people to get excited,” he said. “Now that we’re in the sevens, the sixes are looking more exciting than a year ago. And for people in the sevens and eights, refinancing looks attractive when rates are in the sixes” 5% Would Solve the ‘Lock-in’ Effect Still, because so many sellers are “locked-in” at historically low rates below 4%, “the magic number for them might be the low to mid-fives,” Golden said. “At that point, the gap is closed enough that you’ll see more movement in the marketplace. But the longer this goes on, the higher the range.”

Some buyers can no longer stall, he noted. “As time passes, more people have to make a decision. They might have had their third kid, or a death, or a divorce.”

The locked-in phenomenon isn’t just psychological. An April study from the Wharton School of the University of Pennsylvania revealed many U.S. households are trapped between their low-rate existing mortgages and the exponentially higher current rates.

“With the median loan amount of $200,000, a 1% point increase means $2,000 more in annual payments,” said Lu Liu, an assistant professor of finance at Wharton who studies housing and mortgage markets. “Raise the rate by three or four points, and that’s a large number. The effect on the housing market is unambiguous.”

There’s also a difference in how existing homeowners and first-time buyers perceive the magic number, according to Danielle Hale, chief economist at Realtor.com.

“First-time buyers don’t have an anchor point—they’re not tied to a low rate. They’re also more ready to make changes, while existing homeowners already have a home,” she said. (News Corp owns both Realtor and Mansion Global’s publisher, Dow Jones.)

As a result, it’s hard to pinpoint any magic number for either group, Hale said. “The magic number is a moving target, and it’s going to drift higher over time,” she said. Hale pointed to an April Realtor.com survey in which 74% of Americans said they would not buy a home if rates went above 8%―but millennials (53%) and prospective firsttime home buyers (58%) were less resistant.

Regardless of “magic number” wishes, rates are unlikely to sink to the historic lows of recent years, including the record dip to 2.65% in January 2021.

“Those rates? I don’t see them happening again in my career,” said Golden of @properties. “We got so used to those low lows that it takes time to adjust to the new normal. You have to adapt. If we get back to the low fives, that’s actually a really good rate.”

The Federal Reserve kept interest rates unchanged in a range of 5.25%-5.5% at its final meeting of the year on Wednesday. Central bank officials also predicted rate cuts to come, with interest rates expected to tick down to 4.6% next year.

Along with its policy announcement, the Fed released updated economic forecasts in its Summary of Economic Projections (SEP), including its "dot plot," which maps out policymakers' expectations for where interest rates could be headed in the future.

Fed officials see the fed funds rate peaking at 4.6% in 2024, down from the Fed's previous September projection of 5.1%. That suggests the Fed will cut rates by 0.75% next year.

The Fed has moved in 25 basis point increments over the last year, indicating the central bank now expects to cut interest rates three times in 2024.

Immediately following the SEP's release, markets were pricing in a nearly 60% chance the Federal Reserve will begin to cut rates at its March meeting, up from 40% the day prior, according to data from the CME Group.

Seventeen officials predict a rate cut next year, with five officials seeing a decrease of more than 0.75% while just two see no cut. No officials see rates ticking higher in 2024. This month's expectations for rates next year were also less widely distributed compared to September's projections.

The forecast was also revised lower for 2023 to match the Fed's hold. As recently as September, officials had forecast one more rate hike this year. At the end of 2022, officials had projected interest rates would peak at 5.1% in 2023.

The SEP indicated the Federal Reserve sees core inflation peaking at 2.4% next year — lower than September's projection of 2.6% — before cooling to 2.2% in 2025 and 2.0% in 2026.

Officials see unemployment rising to 4.1% in 2024, matching the previous forecast. Unemployment is expected to remain at that level through 2026.

The Fed also sees a deceleration in economic growth, with the economy forecast to grow 1.4% next year — down from September's 1.5% projection — before picking up slightly to 1.8% in 2025 and 1.9% in 2026.

Stocks jumped materially on the heels of the decision as the 10-year treasury yield (^TNX) dropped about 11 basis points to trade near 4.1%

The Moore Family Team asked their favorite lender, Dan Lourenco to comment on the Federal Reserve rate cut announcement.

“I am excited that the buyers waiting for lower interest rates will be able to afford their dream homes. The sellers will definitely want to be on the market for those buyers. Call me to review the possibilities. 2024 will truly be a Happy New Year.”