Mortgage Rate Predictions for 2024 from 8 Expert Sources Dropped to 5.8%

Mortgage Rate Predictions for 2024 from the Mortgage Bankers Association, Morningstar, Goldman Sachs, National Association of Realtors, Morgan Stanley, Moody’s Analytics, Realtor.com, and Fannie Mae as of August 2023.

• The average 30-year fixed mortgage rate jumped to 7.31% on Tuesday, August 22, 2023.
• A $350,000 mortgage at 5.8% has a monthly payment of $2,054. At 7.31%, it’s $2,401/month
• Mortgage rate forecasts for 2024 from various firms:
  • Mortgage Bankers Association: 4.9%
  • Morningstar: 5.0%
  • Goldman Sachs: 5.9%
  • National Association of Realtors: 6.0%
  • Morgan Stanley: 6.0%
  • Moody’s Analytics: 6.0%
  • Realtor.com: 6.1%
  • Fannie Mae: 6.1%
• The average of these 2024 forecasts is 5.8%.

In summary, while mortgage rates have spiked recently, forecasts suggest they moderate to around 5.8% on average in 2024.

Here’s how you can use this data to your advantage:

First, calculate the difference in payment between the current high rate of 7.3% and the anticipated 2024 average of 5.8%.

For a $350,000 mortgage at 7.31% for a 30-year fixed rate loan, that’s a monthly payment of $2401/month.

The same mortgage at 5.8% generates a monthly payment of $2054/month.

The difference is $348/mo or $4,176/year.

Next, reduce your offer by $4,176 to compensate for the rate difference until you refinance to the lower predicted rate within a year.

Home Demand Increasing – Supply Not Keeping Up

Because of so much pent-up demand from homebuyers waiting for low rates, competition (and prices) for homes will likely be much higher than today when rates drop.

What will that mean for home prices when rates drop to 5.8% compared with today’s estimated 7.3%?

What Will a Seller Say?

Maybe the seller says “yes,” and maybe the seller says “no”…that’s up to the seller. 

Maybe the seller needs to re-evaluate expectations.

“Fear of Missing Out/FOMO” isn’t intense today with buyers. Most can wait this out.

Sellers are seeing fewer offers than they did a year or two ago.

A solid offer with a price reduction (or incentives towards buyer closing costs) could be a no-brainer for a seller today to ensure a closing.

Is it cheaper to sell with incentives? Or let the home sit on the market for another month or two or (or more)?

Do The Math

And if rates go to 8%, try asking for more. Buyers won’t exactly be waiting in line to buy houses at a rate of 8%. I’d ask for up to 2 years of excess interest as a reduction in the price instead of 1, as rates go higher and buyers drop out. 

And because refinancing is highly likely within that time frame, don’t bother with the currently hyped “2/1 buydown,” a mortgage relic resurrected from the past (and very popular with builder sales right now)…take the price reduction or closing cost incentives instead.

Use this opportunity to negotiate incentives for your benefit, both in price and closing costs.

Frankly, it’s the strategy builders use to successfully sell houses, using incentives and reductions (Why do you think Warren Buffet just jumped in with significant investments in homebuilders?) Builders can always undercut resellers with incentives. 

Just remember that builder incentives aren’t free. They’re already built into the pricing for the home and the mortgage they provide through their affiliates) and are mostly intended to maintain the musical chairs of incremental price increases.

Builders don’t want declining sales prices in their subdivision to impact future and pending sales prices. So they increase prices and increase incentives offsetting the increases when sales slow.

Obviously.

If they require that you use “their lender” to get the incentives, then max out all possible incentives and go with their lender. You can refinance it whenever you want without giving back any incentives.

Use Rates as a Tool for Negotiating Your Purchase.

Your realtor can give more specific information on market conditions and “time on the market” data for your offer. 

Utilize a “Buyer’s Broker”

A “Buyer’s Broker” can take away much of the drama of an emotional negotiation for you and the seller. 

I strongly recommend going that route, particularly if negotiating for price reductions and incentives. A skilled intermediary between you and the seller can make the process less stressful for all parties.

What Will Happen When Rates Drop?

Once rates start to drop, it’ll get more challenging to negotiate pricing with sellers unless the available home supply increases dramatically.

Right now, I don’t have enough reliable data to predict that. 

Too many factors are impacting the need for more supply right now. These include mortgage rates, short-term rentals, institutional ownership, work-at-home vs work-at-office, long-term rentals, multi-family construction, and other factors.

However, with current high rates and short supply, demand will sharply increase as rates decline (faster than supply increases).

When is a High Mortgage Rate cheaper than a Low Mortgage Rate?

Sometimes, it’s not cheaper to refinance a high-rate mortgage to a low-rate mortgage IF you make significant principal reductions regularly. 

Remember that prepayments at a high rate are basically paying interest to yourself at a high-interest rate and then also receiving “compound interest” (can be confusing, but “do the math”).

And if a high rate gets you a better purchase price today in a market that’s likely to rise next year if rates go down, then a high rate now can be cheaper than waiting to buy at a low rate later due to property appreciation.

Ask your realtor to help you understand market trends in the areas you’re looking to buy.

NOTE: I didn’t provide rate estimates for 2025 from the above sources (approximately 1% lower than the 2024 estimates) just because there’s no way to reliably predict 2025 without many “what ifs” getting in the way.

Key Takeaway, Rates are high right now and according to Mortgage Rate Predictions for 2024, they’re expected to go lower by 8 expert sources. 

This could be a powerful negotiation opportunity if you’re considering buying a house now while most others are sitting on the sidelines waiting for rates to go down next year. 

Contact Steve Silver at Silver Mortgage, at 1-800-920-5720.

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