Experts release their forecasts in the lead up to the Federal Reserve's key announcement
Mortgage rates, having recently eased from their peak, are projected to see only modest further reductions through the end of 2024, according to industry forecasts.
Earlier this month, the average 30-year fixed mortgage rate fell to 6.47% from a high of 7.22% in early May, marking a decline of 26 basis points, according to Freddie Mac. Despite this decrease, experts suggest that significant drops in mortgage rates are unlikely in the near term, even with anticipated Federal Reserve rate cuts.
Forecasts from key industry players
Freddie Mac predicts that mortgage rates will remain elevated throughout most of 2024. Its July Economic, Housing, and Mortgage Market Outlook anticipates one potential rate cut by the Federal Reserve later this year, which may lead to a gradual easing of mortgage rates. However, Freddie Mac expects rates to stay above 6.5% until 2025, when they might fall below this threshold.
Fannie Mae offers a slightly more optimistic view, forecasting an average rate of 6.8% for the third quarter of 2024 and 6.7% for the fourth quarter. Its projections suggest that the rates will continue to decline into 2025, potentially averaging 6.5% in the first quarter.
The National Association of Realtors (NAR) also expects the 30-year fixed mortgage rate to average 6.9% in the third quarter, with a possible decrease to between 6.5% and 6.7% by the end of the year. NAR’s chief economist, Lawrence Yun, anticipates moderately lower rates, higher home sales, and stabilizing home prices in the latter half of 2024.
The Mortgage Bankers Association (MBA) aligns closely with Fannie Mae’s projections, predicting an average rate of 6.8% for the third quarter and 6.6% for the fourth quarter. MBA expects a further decline to an average of 6.4% in early 2025.
On the more cautious side, the Palisades Group and RE/MAX suggest that rates will remain above 6.25% throughout 2024. Jack Macdowell, of the Palisades Group, notes that expectations for rate cuts have been consistently overestimated, predicting only one or two reductions this year.
Impact of Federal Reserve actions
The Federal Reserve’s decision to keep its benchmark federal funds rate steady at its July meeting has influenced mortgage rate expectations, according to Forbes Advisor. While a reduction in the federal funds rate could occur as soon as September, many observers believe that mortgage rates have already factored in this potential cut.
Bright MLS suggested that even if the Fed reduces rates, mortgage rates may only decrease slightly, hovering around 6.4% by the fourth quarter. Chief economist Dr. Lisa Sturtevant advised prospective homebuyers to consider comparing lenders or exploring assumable mortgages to secure better rates.
Refinancing outlook
For those considering refinancing, the current environment presents challenges. With over 40% of US mortgages originating at historically low rates in 2020 and 2021, refinancing may not be advantageous unless one’s current rate exceeds 7%. However, Jeff DerGurahian, of loanDepot, notes that refinancing could be beneficial for homeowners with higher rates if the Fed implements multiple rate cuts.
Experts suggest that refinancing decisions should be carefully evaluated based on personal financial situations and future interest rate trends. While the outlook for substantial rate drops is limited, careful planning and strategic financial decisions can still offer potential benefits for mortgage holders.
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