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I don’t have a crystal ball. But keep reading for three housing market what-ifs that I believe are rather likely to happen.
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There’s no way to predict mortgage rates or housing market trends with complete accuracy, and the experts get it wrong often. After all, many experts thought the COVID-19 pandemic would be a negative catalyst for home prices, and almost nobody would have thought at the beginning of 2022 (when mortgage rates were around 3%) that they would more than double by the end of the year.
With that in mind, we can use some of the information that’s available to make projections, so that’s what I’m going to do here. These are meant to be bold predictions, but I think they have a higher chance of happening than experts seem to believe.
Prediction 1: Mortgage rates will fall by more than the experts think
As I wrote in an article toward the end of 2023, most experts are predicting that mortgage rates will fall in 2024. Realtor.com predicted that the average 30-year mortgage rate would be 6.5% at the end of the year, while the National Association of Realtors (NAR) is predicting a decline to 6.3%. And Wells Fargo’s Economics Group is one of the more optimistic forecasters, anticipating rates to fall to 6.05% before 2025 begins.
However, keep in mind that most of these projections were made in the latter months of 2023, when mortgage rates reached multi-decade highs over 8%. Since peaking in October, mortgage rates have dropped sharply, sitting at 6.75% as of mid-January.
I think mortgage rates could fall significantly further from here, especially if the Federal Reserve starts lowering benchmark interest rates. Plus, consider that the spread between the 30-year mortgage rate and 10-year Treasury yield has averaged about 1.75% historically, but is currently more than a percentage point higher. If this were to normalize, we’d have mortgage rates of about 5.75% today.
To be sure, I don’t think 3% and 4% mortgage rates are coming back anytime soon. However, my bold prediction is that we’ll see mortgage lenders offering rates of 5.5% (or less) by the end of 2024.
Prediction 2: Millions of homeowners will benefit from refinancing
Mortgage refinancing volume has plunged to roughly one-tenth of the level we saw in late 2020 when rates were in the 3% range. After all, not many homeowners have been able to benefit from refinancing, with rates over 6.5% for much of 2023.
However, keep in mind that there has been well over $1 trillion in purchase mortgage volume over the past year, and this was with average 30-year mortgage rates as high as 8%. If rates fall more sharply than expected in 2024, it could lead to a wave of recent home buyers refinancing their loans to reduce their monthly mortgage payments. So, my bold prediction is that refinancing volume by the end of 2024 will be double what it was at the end of 2023.
Prediction 3: Home prices will rise again
Most experts are predicting that home prices will hold roughly steady in 2024 after a modest 3% increase in 2023. Zillow’s latest forecast calls for home values to fall by 0.2% this year, while Redfin’s economists see a 1% year-over-year decline in the second and third quarters, but home values finishing the year right where they were at the end of 2023.
I see things playing out a little differently, and specifically because I foresee mortgage rates falling more than expected. The vast majority of home buyers use a mortgage, so it isn’t as much about the price they pay for the home as it is about their monthly housing expense. Falling mortgage rates mean that homeowners’ monthly budget can bear the payments on a larger loan, and I think this will cause home values to unexpectedly rise by a mid-single-digit percentage in 2024.
No way to know for sure
To reiterate, I don’t know what will happen with mortgage rates, home-buying activity, or real estate prices in 2024. Anyone who tells you they know these things for sure is lying to you.
Having said that, with the sharper-than-expected plunge in mortgage rates we’ve already seen in recent months, there’s a solid case to be made that 2024 could see mortgage rates rapidly cool off, leading to a spike in home-buying activity due to pent-up demand from buyers who stayed on the sidelines due to 7%-and-higher mortgage rates. We’ll have to wait and see, and I look forward to revisiting these bold predictions at the end of the year.
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