The 2024 Mortgage Outlook

The 2024 Mortgage Outlook

It was a tough year for prospective homebuyers. Historically high home prices and interest rates, combined with low home inventory and inflation’s persistent strain on budgets, made it nearly impossible for many families to realize their homeownership dreams in 2023.

As the saying goes, “it’s always darkest before the dawn,” so will the sun begin to rise on the housing and mortgage industry in 2024? While we don’t have a crystal ball, this article discusses what we believe could happen in 2024 to improve access and affordability in the housing market.

Steady or Decreasing Interest Rates
In March of 2022, the Fed began raising interest rates to stem red-hot inflation rates that peaked at 9.1% in June of that year. Since then, inflation has gradually moderated, coming in at 3.1% in November 2023. Given the decreasing inflation and that the last rate hike took place in July 2023, there is a high probability the rate increases are over. In fact, many experts are forecasting that the Fed will begin to cut rates as soon as Q2 2024.

As of December 13, 2023, the national average rate for a 30-year fixed mortgage was 7.42%. So how low could rates go? It’s hard to say for sure, but many economists agree they could fall to at or slightly below 6% by the end of 2024. This is good news when it comes to affordability. Lower interest rates mean a lower monthly payment and less strain on a homebuyer’s budget.

Slight Increase in Home Inventory
Today, 91.8% of U.S. homeowners with a mortgage have an interest rate below 6%. With current interest rates well above that mark, there is little motivation to sell and then finance a new home at a higher interest rate. If interest rates begin to drop closer to 6% or below in 2024, we would expect more homes for sale to hit the market.

Additionally, new residential construction permits appear to be on the rise, up 1.1% in October 2023. While this number is 4.4% lower compared to October 2022, the upward trend is encouraging. If it continues, new home inventory will increase, helping to ease but not fully satisfy the high demand.

Slight Decrease in Home Prices
In December 2023, average home prices were up 3.9% year-over-year. If new construction increases and interest rates begin to decline toward the middle of 2024, more homes will be on the market. More inventory means more competition, which may force sellers to lower their asking prices. How far will home prices fall? Again, it’s hard to say, but many experts predict they will decrease by 2% or less.

Increased Conforming Loan Limits
Another factor that could make homes more affordable for buyers in 2024 is the increase in conforming loan limits (CLL). In November 2023, the Federal Housing Finance Agency announced the CLL will increase in 2024 from $726,200 to $766,550. This is important because as the price of homes continued to increase in 2023, individuals wanting a mortgage loan that exceeded the previous limits, were forced to acquire a more expensive, non-conforming Jumbo loan. The 2024 Conforming Loan Limit Increase makes is easier for these homebuyers to qualify for more home with a less expensive conforming loan.

As it turns out, things just might be getting brighter. While interest rates, inventory and home values are unlikely to return to pre-pandemic levels any time soon, things appear to be pointing in the right direction. Regardless, if you have questions about lending options, start with an FNBO Mortgage Loan Officer and get prequalified before you begin your homebuying search.