Mortgage interest rates are likely to keep on rising in October. Projecting the trend for mortgage rates this month isn't particularly tricky, but it doesn't look like there'll be any treats, either.
While we don't face the specter of another Federal Reserve meeting until November, the central bankers' 75-basis-point rate increase in late September, coupled with their latest round of predictions for interest rates, should be more than enough to spook mortgage lenders. What's less clear is whether lenders will front-load the anticipated increases by rapidly ramping up rates in October or if we'll see a more gradual ascent.
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The Federal Reserve may not yet have scared inflation into submission, but it has undoubtedly gotten a reaction from the housing market. Mortgage interest rates have increased ahead of each Fed meeting in 2022, trending upward even before the first increase to the federal funds rate was announced in March.
The run-up to the September meeting saw a significant jump, with 30-year fixed-rate mortgages surpassing and then staying above 6%. Arguably, this was mortgage lenders getting out in front of the Fed. An aggressive 75-basis-point increase was expected, and some had even considered a 100-basis-point hike a real possibility.
In addition to its usual announcement, the Federal Reserve issued a Summary of Economic Projections after the September meeting. These predictions come out four times a year; the last one was back in June. The strategy grew considerably more aggressive over the summer, forecasting that the federal funds rate — currently 3% to 3.25% — will hit roughly 4.4% by year's end and go even higher in 2023. In June, the predicted 2022 year-end number was 3.4%, which two more rounds of rate hikes in November and December will easily pass.
Affordability worsening even as prices start to fall
This rising rate environment is sending chills down the spines of many potential home buyers, even as home prices show signs of softening. Though year-over-year increases continue, as of August, the median existing home price has dropped for two months running, according to the National Association of Realtors. However, the additional interest financed buyers have to pay potentially wipes out any benefit from lower prices.
To borrow $300,000 at a 6% interest rate, a buyer would be looking at monthly principal and interest payments of almost $1,800. At the beginning of 2022, when interest rates were around 3.5%, monthly payments on a $300,000 mortgage would have been just under $1,350. The same loan would now cost roughly $450 more per month.
The rising cost of borrowing is pushing down demand, as the Fed had hoped, creating slightly less competition in some markets. There's still a shortage of available homes. However, if these trends continue, we could see a housing market that favors buyers before the year ends, according to Black Knight, a mortgage and real estate analytics company.
What happened to mortgage rates in September
Mortgage rates rose each week in September. Interest rates for 30-year fixed-rate mortgages had a brush with 6% back in June, but last month they quickly went north of 6% and stayed there. Other loan types saw increases, too — interest rates on 15-year fixed-rate mortgages and 5-year adjustable-rate mortgages, for example, have been above 5%.
Our September forecast predicted that rates for fixed-rate mortgages would "remain fairly stable" for the first three weeks of the month, potentially rising following the Fed's announcement on the 21st. Instead, that rise started soon after Labor Day, as those weeks saw Federal Reserve officials making public comments about their commitment to fighting inflation with rate hikes, plus a report from the Bureau of Labor Statistics showing that while the rate of inflation had slowed, it was still near 40-year highs.
The MBA's forecast suggests that 30-year mortgage rates will fall into the 6.4% to 6.7% range throughout the rest of 2024, and Fannie Mae is forecasting the same. NAR believes rates will average 7.1% this quarter and fall to 6.5% by the end of 2024.
If inflation falls significantly and the economy enters a deep recession, it is possible that mortgage rates could fall back to 3%. However, this scenario is considered unlikely by most economists.
The bottom line. Today's elevated mortgage rate environment isn't preferable for homebuyers, but it doesn't mean that you should refrain from acting, either. If you discover your dream home, can afford the interest rate, find an affordable house, or have an alternative to rent, it can be worth it for you now.
There's no doubt that record-low mortgage rates helped fuel the housing boom of 2020 and 2021. Some think it was the single most important factor in pushing the residential real estate market into overdrive. When mortgage rates surged higher than they had been in two decades, the housing market slowed dramatically.
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%.
In its April Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.8% in the first quarter of 2024 to 6.4% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the fourth quarter of 2025.
After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023. Many experts and industry authorities believe they will follow a downward trajectory into 2024. Whatever happens, interest rates are still below historical averages.
The good news is that inflation is cooling, and many experts expect interest rates to move in a downward direction in 2024. Then again, a two-point drop would be significant, and even if rates fall, they're not likely to get down to 5% within the next year.
The predictions made by the various analysts and banks provide insight into what the financial markets anticipate for interest rates over the next few years. Based on recent data, Trading Economics predicts that rates will fall back down to 4.25% in 2024 and 3.25% in 2025.
For most homebuyers, a down payment of less than 20 percent will generally cost more money in the long run. But if saving up that kind of money will keep you from ever owning a home, it's worth considering.
Porting a mortgage essentially means transferring your mortgage to a new house. This will include the current terms of your loan, such as the interest rate and payment schedule.
Traditionally, low mortgage rates and short supply make it a good time to sell. While today's rates are relatively high, low inventory is still keeping sellers in the driver's seat in most markets.
As a result, we expect mortgage rates to remain elevated through most of 2024. These high interest rates will prompt prospective buyers to readjust their housing expectations, but we anticipate housing demand to remain high due to favorable demographics, particularly in the starter home segment.
To combat ongoing inflation, the rate was raised 11 times between March 2022 and July 2023. Inflation has started to recede, but the Federal Open Market Committee (FOMC) has signaled it wants more positive data before pulling the trigger.
Key Takeaways. Although there are certain factors that can point to a possible real estate housing market crash happening in our society right now, experts do not currently expect a housing market crash. The general consensus is that housing prices will not be dropping in 2024.
Despite predictions that interest rates would fall in 2024, the Federal Open Market Committee has not cut them. Markets now anticipate that one or two interest rate cuts will come later in the year. That's because progress on lowering inflation is taking longer than expected.
But after two years of increases, there are strong indications that auto loan rates could start to come back down in 2024 — perhaps by a substantial amount.
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.
"Today, according to the CME's FedWatch Tool, the consensus of market participants is that in December of 2024, the target Fed funds rate will be a full 75 basis points lower than today. This will translate into lower CD rates.
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