Hoping to buy a home in the new year? This is what you can expect for mortgage rates in 2024

If you’ve been sitting on the housing market sidelines because of sky-high mortgage rates, there’s good and bad news heading into 2024. The good? Mortgage rates are expected to drop in the new year. The bad? They probably won’t drop as much as you’d like.

“The pandemic was too hot; 2023 was too cold,” says Odeta Kushi, deputy chief economist at First American Financial Corporation, a title insurance and settlement services provider. “2024 won’t be just right, but it will be heading in a normalizing direction.”

Mortgage rates climbed for most of 2023, reaching nearly 8%—a level not seen in two decades. Though a far cry from the double-digit highs of the 1970 and 80s, for hopeful buyers, those rates crushed affordability. And for would-be sellers, they had a lock-in effect. Homeowners who might have otherwise sold instead stayed put not wanting to lose existing—much-lower—interest rates.

Keeping with many other housing economists, Kushi expects mortgage rates to decline in 2024—but only a modest amount. Should those predictions ring true, the question is whether the drop will be enough to shift housing affordability in the right direction.

How far could mortgage rates drop in 2024?

The consensus among industry professionals is that mortgage rates will gradually decline across 2024. Here’s where experts are predicting mortgage rates will land by the end of 2024:

SourceProjected 30-year mortgage rate (by end of 2024)Mortgage Bankers Association6.1%Fannie Mae6.5%Realtor.com6.5%Redfin6.6%National Association of Realtors6 to 7%

At the close of 2023, the average rate on a 30-year fixed-rate mortgage was 6.61%, according to Freddie Mac. While that’s about average historically—and down more than a full percentage point since rates peaked at 7.79% in October—such high rates were unthinkable just two-years ago. 

Back then, the Federal Reserve was holding short-term interest rates near zero to spur the pandemic-battered economy, and mortgage lenders were offering rates below 3%. This pushed up demand for mortgages from home buyers, as well as from homeowners looking to refinance existing loans. Once the Fed started raising rates to fight inflation in March 2022, though, mortgage lenders reversed course. The result was steadily rising home-financing costs, slowing home sales and essentially nonexistent refinance demand. 

The year ahead is poised to be another turning point in the mortgage world. With inflation seemingly under control, the Fed has signaled it could begin cutting interest rates in 2024, likely around midyear. While the Fed doesn’t directly determine mortgage rates, it’s likely that lenders will again follow the Fed’s lead. “Our modeling suggests a gradual, steady decline,” says Danielle Hale, chief economist at Realtor.com. (News Corp, parent of The Wall Street Journal, operates Realtor.com.) 

But there are no guarantees. “The primary factor for mortgage rates is ongoing improvement in inflation,” Hale says. “If we don’t see that progress on a sustained basis, we would be looking at a very different, higher interest rate environment.” 

If inflation starts rising again, rates may stay higher for longer. On the other hand, if inflation falls below the Fed’s 2% target or the economy shows signs of distress, the Fed may move to lower rates sooner than anticipated.

“After a couple of years of exceedingly low rates, we may need to redefine what a normal market is supposed to look like,” says Miki Adams, president of CBC Mortgage Agency, a mortgage lender and down payment assistance provider in South Jordan, Utah.

What lower mortgage rates could mean for home buyers

A fall in mortgage rates is obviously good news for hopeful home buyers. But will those lower rates be a game changer? Likely not for most consumers. Here’s what we can expect falling mortgage rates to look like on the ground.

Affordability will improve—a bit

Lower rates will make mortgage payments lower, but buyers shouldn’t expect any drastic improvements in affordability. On a $500,000 loan, for example, a 7% rate would mean a monthly mortgage payment of just over $3,300. At Realtor.com’s projected year-end 6.5% rate, that payment would drop to $3,160—a difference of only $140. 

If rates fall as far as MBA’s predictions—6.1% and the lowest among industry forecasts—the savings could be more notable. In that same scenario, the savings would be about $270 a month.

There could be more homes for sale—and slower price growth

The high mortgage rates of 2023 haven’t just stymied buyers. They’ve also kept existing homeowners stuck in place—80% of whom have current mortgage rates under 5%.

There’s hope that lower rates in 2024 could spur some of these homeowners to enter the market, thereby increasing listings and putting downward pressure on prices. But again, experts say the impact will likely be minimal (at least from a national perspective).

“Certainly, rates dropping will help to unlock some homeowners, especially those sitting on a ton of equity,” Kushi says. “But it won’t be sufficient to unlock the majority of existing homeowners.”

Fannie Mae currently projects a 4.1% increase in home prices by the end of next year (down from 5.7% price growth this year). In some competitive housing markets, though, the impact of more listings could be felt more significantly. In Dallas, for instance, Realtor.com is projecting an 8% fall in home prices next year; over 5% in San Francisco.