Homebuyers Could See Major Relief as Mortgage Rates May Drop Below 6% by Year’s End

Grab your coffee and perk up, because for the first time since the ancient days of September 2022, aspiring homeowners might finally catch a break: mortgage rates are expected to dip below 6% before we ring in the new year. I know—it almost sounds like spotting a unicorn at your open house, right?

Mortgage Rates Expected to Decline, Says Fannie Mae

So, here’s the word on the street from Fannie Mae (yep, the folks who buy up massive piles of home loans so your local lender doesn’t lose sleep): mortgage rates are going on a bit of a downward jog, although anyone who’s watched rates this year knows it’s definitely not all smooth sailing. The trusty old 30-year fixed rate mortgage is forecasted to reach approximately 5.8% before 2024 packs its bags. Optimists are clapping; the skeptics, meanwhile, suspect rates could hover above 6% for the rest of the year. Only time—and the Federal Reserve’s next move—will tell.

What’s actually wild? Rates have already tumbled more than a full percentage point since the Halloween decorations came down last October. If Fannie Mae’s sunny prediction comes true, we’ll have dropped nearly two points from the dizzying 7.79% peak of 2023. For buyers, sellers, and everyone lurking on Zillow at 2 a.m., this is a pretty big deal.

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Get the Best Mortgage Rate Today

Mortgages aren’t one-size-fits-all (wouldn’t that be nice?), but you’ve got options. Nine times out of ten, Americans pick the 30-year fixed-rate flavor, but don’t sleep on 15-year fixed, FHA, VA, and adjustable-rate mortgages. If you know your dream home’s price and have your down payment set, now’s the time to shop around—bonus points if you have a military background, as you might qualify for a special deal. Getting a rate quote from Rocket Mortgage (NMLS #3030) might just surprise you. For context, folks with top-tier FICO scores (780+ and rocking a 20% down payment) are seeing average rates around 7.01%, though, of course, your mileage may vary.

Why Fannie Mae’s Forecast Is Upbeat

It’s not every day that an economist flashes a hopeful grin, but Fannie Mae’s current rate outlook is the cheeriest we’ve seen in a while. Doug Duncan, their chief economist, chalks it up to the Federal Reserve’s mood swing. Instead of scaring everyone with more interest rate hikes, the Fed is now all about pausing—and even talking up some cuts down the road. That’s great for mortgage rates, at least in theory.

But don’t go planning your refinance party just yet. World events (say, conflicts in the Middle East) can muddy the waters fast, stirring up supply chain woes and inflation. Those kinds of shocks might make the Fed rethink its “let’s chill out on rates” attitude, just when homebuyers thought they could breathe easier.

Rates are also at the mercy of the twitchy bond market, which will react to every new jobs report like a cat to a laser pointer. Mark Palim, Fannie Mae’s deputy chief economist, reminds us that “week-to-week movement” is the status quo, making it nearly impossible to guess exactly what tomorrow’s rates will be. Fun times, right?

Housing Market Conditions Are Gradually Improving

If it feels like the housing market has been riding a rollercoaster in the dark, you’re not alone. Ever since the Great Recession, the rules of real estate have been getting rewritten almost every year—and the pandemic’s wild ride only made things zanier.

Consider this: in an average year, about five million homes change hands. 2021 blew that number out of the water with over six million sales, but by 2023, we were plunging below four million. Yikes. Still, Doug Duncan is betting on a rebound for this year, thanks in part to those expectedly friendlier mortgage rates. Lower payments? More buyers get brave enough to rejoin the hunt. Fannie Mae is now projecting about 4.5 million sales before the year’s out.

Cheaper rates have a little trickle-down magic, too: they’re luring more homeowners into refinancing, which last year was about as rare as an empty Home Depot parking lot. As rates ease up, expect more folks to swap out their old, high-rate mortgages for shinier new loans with better terms.

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Outlook for Housing Inventory and Home Prices

Not to burst anyone’s bubble, but housing inventory is still the thorn in every homebuyer’s side—and it’s not likely to sprout overnight. The roots of this shortage stretch back to the 2008 crash, when too many foreclosures left builders more skittish than a cat in a roomful of rocking chairs. Construction never picked back up at the pace the country needed, so when the pandemic sent buyers into a frenzy, inventory was already running on fumes.

Today, the available home supply is around three months—still well below what experts call a “healthy” market. Mark Palim hit the nail on the head: low supply = fewer options for buyers, and decision-making becomes more like a high-stakes round of musical chairs. Nobody loves a bidding war, unless, maybe, you’re the seller.

Hoping for a dramatic surge in available homes this year? Don’t hold your breath. Sure, there are slightly more listings, but homeowners still clinging to those 3% and 4% mortgage rates are understandably reluctant to trade up (or down) and take on a new loan at today’s higher rates. Result? The gap between what’s for sale and what buyers want isn’t shrinking anytime soon.

It also means home prices are staying elevated, though the fireworks are losing some sparkle. Fannie Mae projects prices will rise by 3.2% in 2024, a gentler climb than the 7.1% rocket we endured in 2023.

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