Goldman said the decline in mortgage rates should offer marginal improvements in housing affordability.
The average 30-year mortgage rate fell to 6.62% last week after hitting a cycle-high of 7.8%.
Our Chart of the Day is from Goldman Sachs, which plots the firm's expectation that the 30-year mortgage rate will stay above 6% through 2025.
Goldman said it expects 30-year mortgage rates will drop to 6.3% by the end of 2024, and fall slightly in 2025 to 6% as the Fed starts to cut interest rates. Previously, Goldman had expected the 30-year mortgage rate to be at 7.1% by the end of 2024 and at 6.6% by the end of 2025.
"This revision reflects our economists' expectation that the Fed will deliver five cuts in 2024 amidst a robust growth backdrop for the economy, as well as some compression in the spread between mortgage rates and Treasury yields," Goldman Sachs analyst Roger Ashworth said in a note on Wednesday.
The average 30-year mortgage rate stood at 6.62% last week, according to Freddie Mac, representing a sharp decline from its cycle high of 7.79% reached in October.
A continued decline in mortgage rates would help marginally improve housing affordability, Goldman said, though it won't be enough to completely unwind the sharp increase seen in mortgage rates from 2022 to 2023.
Overall, lower mortgage rates should bring stability to the mortgage-backed securities market and boost mortgage originations to $2 trillion in 2025, compared to $1.5 trillion in 2023.
Much of that expected growth in mortgage originations will likely be driven by "heightened" refinance activity, Ashworth said, as consumers who bought homes over the past year seek to lock-in a lower mortgage rate.
Our Chart of the Day is from Goldman Sachs, which plots the firm's expectation that the 30-year mortgage rate will stay above 6% through 2025. Goldman said it expects 30-year mortgage rates will drop to 6.3% by the end of 2024, and fall slightly in 2025 to 6% as the Fed starts to cut interest rates.
The average 30-year fixed mortgage rate as of Thursday was 6.99%. By the final quarter of 2025, Fannie Mae expects that to slide to 6.0%. Meanwhile, Wells Fargo's model expects 5.8%, and the Mortgage Bankers Association estimates 5.5%.
Mortgage rates are expected to decline later this year as the U.S. economy weakens, inflation slows and the Federal Reserve cuts interest rates. The 30-year fixed mortgage rate is expected to fall to the mid- to low-6% range through the end of 2024, potentially dipping into high-5% territory by early 2025.
The 10-year treasury constant maturity rate in the U.S. is forecast to decline by 0.8 percent by 2026, while the 30-year fixed mortgage rate is expected to fall by 1.6 percent. From seven percent in the third quarter of 2023, the average 30-year mortgage rate is projected to reach 5.4 percent in 2026.
Mortgage rates are likely to trend down in 2024. Depending on which forecast you look at for housing market predictions in 2024, 30-year mortgage rates could end up somewhere between 6.1% and 6.4% by the end of the year.
After the initial expected Fed rate cuts, savings account rates could fall even more heading into 2025, some experts say. "As many analysts predict, the Fed is likely to start cutting rates later in 2024 and continue in 2025.
While McBride had expected mortgage rates to fall to 5.75 percent by late 2024, the new economic reality means they're likely to hover in the range of 6.25 percent to 6.4 percent by the end of the year, he says.
"By the first quarter of 2025, mortgage rates could potentially fall below the 6% threshold, or maybe even lower." Hold steady through 2024: Afifa Saburi, a capital markets analyst for Veterans United Home Loans, doesn't think rates are going to drop much this year.
In summary, it is unlikely that mortgage rates in the US will ever reach 3% again, at least not in the foreseeable future. This is due to a combination of factors, including: Higher Inflation: Inflation is currently at a 40-year high in the US, and the Federal Reserve is raising interest rates to combat it.
Once you find a rate that is an ideal fit for your budget, lock in the rate as soon as possible. There is no way to predict with certainty whether a rate will go up or down in the weeks or even months it sometimes takes to close your loan.
Wells Fargo is now expecting just two interest rate cuts in 2024, starting this summer, followed by one more cut in 2025. That would leave the Fed funds rate in a range between 4.75% and 5% at the end of this year, and 4.5% to 4.75% at the end of 2025.
Fannie Mae's Housing Forecast echoes this sentiment, predicting the 30-year mortgage rate to conclude 2024 at 6.4%, a slight uptick from previous forecasts, but still indicative of a downward trend.
According to their latest forecast for 30-year mortgage rates in October 2023, they expect them to range from 7.40% to 7.86%, with an average of 7.63%. They also predict that mortgage rates will peak at 9.41% in May 2024, before gradually declining to 3.67% by November 2027.
Key takeaways. The Federal Reserve is likely to cut interest rates at least once in 2024, with the largest share of officials expecting three cuts. The timing and frequency of rate cuts will depend on a variety of factors, including inflation and the labor market.
In summary, it is unlikely that mortgage rates in the US will ever reach 3% again, at least not in the foreseeable future. This is due to a combination of factors, including: Higher Inflation: Inflation is currently at a 40-year high in the US, and the Federal Reserve is raising interest rates to combat it.
For people looking to buy a home, a recession can bring some advantages. When the economy is not doing well, home prices often drop, which can be good news for those who want to find a good deal; plus, during recessions, mortgage rates usually stay low, meaning buyers can get a home with lower monthly payments.
Projections suggest that we may see no rate increases in 2024, and that the Fed might start dropping its rate later this year, according to the CME FedWatch Tool on March 19. If the Fed rate drops, CD rates will likely follow suit, though it's up to each bank and credit union if and when that occurs.
When inflation is running high, the Fed raises those short-term rates to slow the economy and reduce pressure on prices. But higher interest rates make it more expensive for banks to borrow, so they raise their rates on consumer loans, including mortgages, to compensate.
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