U.S. mortgage rates dipped for the ninth consecutive week amid expectations of interest rate cuts by the Federal Reserve after elevated rates negatively impacted home affordability in 2023.
“Heading into the new year, the economy remains on firm ground with solid growth, a tight labor market, decelerating inflation, and a nascent rebound in the housing market.”
The elevated mortgage rate over the past year has had a dampening impact on the U.S. housing market.
“The number of affordable homes for sale also dropped to the lowest level on record. There were 352,500 affordable listings in 2023, down 40.9 percent from 596,135 in 2022 and down from over a million per year during the prior decade.”
One of the reasons for the drop in listings is the “elevated mortgage rates,” the brokerage said.
Inventory for existing homes for sale is “historically low” while new listings are being added at the “slowest pace on record,” it said.
“Homeowners looking to sell their houses and buy new ones face the daunting prospect of having to prepay their current mortgages and take out fresh mortgages at today’s higher rates.
This ‘lock-in’ effect is projected to depress sales of existing homes to 3.8 million in 2024, the lowest level since the early 1990s,” Goldman Sachs stated.
Even though the inventory of new homes is continuing to rise, most of this inventory is “still under construction.”
High Mortgage Rates
Despite the more than 1 percentage point drop over nine weeks, the current mortgage rate of 6.61 percent is far higher than in 2021. On Dec. 29, 2021, the rate was just 3.11 percent, less than half of what it is now. Compared to a year back, the current rate is slightly higher.The recent decline in mortgage rates was triggered as a result of investors anticipating that the Federal Reserve would cut their interest rates beginning next year.
While mortgage rates are expected to ease down in 2024, mostly due to the Fed’s rate cuts, not many experts see it dipping to the 3 percent levels. In fact, most industry lenders are expecting mortgage rates to be somewhere in the 6 to 7 percent range.
“In the first half of 2024, inflation will remain somewhat stubborn, the jobs reports will continue to send mixed messages, and the Fed will try and temper down over-exuberant investors and consumers who believe Fed rate hikes are over and Fed rate cuts are imminent,” Mr. Gordon said. “Rates will stay in the 6.625 percent to 7.25 percent range.”
During the second half, inflation will get curbed, the economy will cool down, and unemployment will continue rising, he predicted.
“The Fed will no longer be able to send mixed messages and will have to admit their plan worked. They'll start to lower their rates early this summer to try and maintain balance and avoid a recession. I predict mortgage rates will then go down to the low to mid-sixes.”