Two Approaches the Federal Reserve Interest Rate Fluctuations Could Benefit Home Buyers in 2024

In a promising development for homebuyers in 2024, the prospect of falling mortgage rates, coupled with potential measures from the Federal Reserve, is expected to bring about two significant advantages. Firstly, there’s the potential for houses to become more attainable, fostering affordability in the real estate market. Secondly, an anticipated increase in available listings could offer prospective buyers a broader range of options.

Gradual Declines Anticipated

While projections don’t foresee mortgage rates dipping below 6% this year, gradual declines are on the horizon. The Federal Reserve gears up for interest rate cuts. Although the initial cuts aren’t expected imminently, economists are eyeing a potential commencement in the coming spring months.

The Numbers Speak

Recent data from Freddie Mac indicates that the average 30-year fixed-rate mortgage has already dipped to 6.69% as of January 25. The Federal Reserve’s actions don’t directly control mortgage rates, but rate cuts usually impact the 10-year Treasury yield. Influencing mortgage rates indirectly. This is a key metric for lenders in setting mortgage rates.

What to Expect

Chief Economist at the National Association of Realtors, Lawrence Yun, foresees mortgage rates hovering around 6.5% for the remainder of the year. Chen Zhao, an economist at Redfin, projects rates in the low 6s by December. Even though these rates remain relatively high compared to the past two decades, they mark a significant decrease from the close-to-8% rates observed in the fall.

Shaping Market Dynamics

Rates falling below 6% are expected to play a pivotal role in the real estate market, according to Zhao, according to The Washington Post. He suggests that the lowered psychological barrier for sellers and a more optimistic outlook for buyers could contribute to a shift in market dynamics, bringing about increased activity.

A Closer Look

Ted Rossman, a consumer-spending analyst at Bankrate, illustrates the potential financial impact by offering a scenario. For a $400,000 home with 20% down and a 6.93% 30-year fixed mortgage, the expected monthly payment is approximately $2,113. If rates drop to around 6.18%, this would result in a reduction of about $158 in the monthly payment.

Encouraging Sellers and Buyers

As of December, the median existing-home sale price reached $382,600, according to the National Association of Realtors, according to a Wall Street Journal report. The prospect of rates falling below 6% could encourage potential sellers who were previously hesitant to list their homes.

The Worst Year for Home Sales

The real estate market faced challenges in 2023, with higher mortgage rates and a reluctance among homeowners to sell, making it the worst year for home sales in decades. Existing-home sales plunged by 19% in 2023 compared to the previous year, dropping to 4.09 million. This marked the lowest full-year level since 1995.

Securing Favorable Terms

For prospective homebuyers aiming to secure mortgage rates close to 6%. Strategic approaches heading into spring include boosting credit scores and utilizing mortgage points to lower interest rates. Sellers and home builders may also play a role in the market by offering rate buy-downs. This strategy aims to entice potential buyers, providing additional avenues for securing favorable mortgage terms.