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Mortgage Rate Predictions for Week of July 22–29, 2024 [CNET]
The average rate for a 30-year fixed mortgage was 6.85% as of July 22, according to data from CNET sister site Bankrate. That’s a decrease of 0.07% from the previous week.
Much will be riding on the Federal Reserve’s July 30-31 policy meeting. If the Fed signals that a rate cut is coming, mortgage rates should continue to ease. Experts don’t expect dramatic rate drops over the next year.
Will interest rates fall in 2024?
When the Fed starts cutting interest rates, borrowing rates for home loans will also go down. Most economists and housing market experts expect the average rate on a 30-year fixed mortgage to decrease by about half a percentage by the end of the year.
“I think 6.5% is a fair target for early 2025,” says Erin Sykes, chief economist at NestSeekers International. Over the long term, Sykes believes mortgage rates will end up around 6%, marking a healthy balance between the extreme low-high vacillations we’ve seen since 2020.
Will the Fed lower rates in July?
The central bank is not expected to lower rates at the next Federal Open Market Committee meeting on July 30-31, although there could be a rate cut in the fall. It is only forecasting one rate cut this year, according to its latest Summary of Economic Projections.
“As the economy continues to cool and the Fed enacts the first rate cut, I think we’ll see a nice bounce downward in mortgage rates,” says Melissa Cohn, regional vice president of William Raveis Mortgage and a member of CNET Money’s expert review board. “The question becomes if the first cut will come in September, or if that’s too close to the election.”
Many experts are confident that the Fed will trim rates in September, provided inflation continues to moderate and the labor market weakens further.
“If the numbers continue to show the economy cooling, there’s a good chance that we’ll actually get two rate cuts this year,” says Jeb Smith, a real estate agent and a member of CNET Money’s ERB. “They could cut in September and then again in November or December.”
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Other factors affecting the housing market right now
Today’s unaffordable housing market results from high mortgage rates, a long-standing housing shortage, expensive home prices and a loss of purchasing power due to inflation.
A balanced housing market typically has five to six months of supply. Most markets today average around half that amount. Even though we saw a surge in new construction in 2022, according to Zillow, we still have a shortage of around 4.5 million homes.
At the start of 2022, mortgage rates were near historic lows of around 3%. As inflation surged and the Fed began hiking interest rates to tame it, mortgage rates roughly doubled within a year. In 2024, mortgage rates are still high, effectively pricing out millions of prospective buyers from the housing market. That’s caused home sales to slow, even during typically busy homebuying months, like the spring and early summer.
Since the majority of homeowners are locked into mortgage rates below 6%, with some as low as 2% and 3%, they’re reluctant to sell their current homes since it would mean buying a new home with a significantly higher mortgage rate. Until mortgage rates fall below 6%, homeowners have little incentive to list their homes for sale, leaving a dearth of resale inventory.
Though homebuying demand has been limited in recent years, home prices remain high because of a lack of inventory. The median US home price was $419,300 in May, up 5.8% on an annual basis, according to the National Association of Realtors.
High home prices make it difficult for prospective buyers to afford a down payment and the cost of carrying a large mortgage. According to a recent study from CNET’s sister site, Bankrate, prospective buyers need an annual income of more than $100,000 to afford a median-priced home.
Inflation increases the cost of basic goods and services, reducing our purchasing power. It also impacts mortgage rates: When inflation is high, lenders typically set interest rates on consumer loans to compensate for the loss of purchasing power and ensure a profit.
Even though the inflation rate has been cooling over the past year from its peak of 9.1% a few years ago, price growth is still significant. The most recent inflation data shows annual inflation at 3%, which is still above the Fed’s 2% target rate.
Will mortgage rates ever be 3% again?
A few years ago, homebuyers could take out home loans with rates between 2% and 3%. Mortgage rates will fall over the next year, but they won’t reach those levels. Housing market experts say it would take a significant economic crisis for mortgage rates to drop below 3%.
Read more: You Won’t Get a 2% Mortgage Again. How to Adjust to a Different Housing Market
There is no single “average” mortgage rate. They vary significantly depending on how each source, whether that’s a lender or a government-backed agency like Fannie Mae, compiles their data. It’s likely you see a difference of several percentage points between two sources.
Expert advice for homebuyers
It’s never a good idea to rush into a major purchase like buying a home without knowing what you can afford, especially with current interest rates. In addition to having a clear homebuying budget, here’s what experts recommend:
Build your credit score. Your credit score is one of the main factors lenders consider when determining whether you qualify for a mortgage and at what interest rate. Working toward a credit score of 740 or higher will help you qualify for a lower rate.
Save for a bigger down payment. A larger down payment will allow you to take out a smaller mortgage and get a lower interest rate from your lender. If you can afford it, putting down a down payment of at least 20% will also eliminate the need for private mortgage insurance.
Shop around for mortgage lenders. Comparing loan offers from multiple mortgage lenders can help you negotiate a better rate. Experts recommend you get at least two to three loan estimates from different lenders before making a decision.
Consider the rent vs. buy equation. Choosing to rent or buy a home isn’t just comparing monthly rent to a mortgage payment. Renting offers flexibility and lower upfront costs, but buying allows you to build wealth and have more control over your housing costs. The best choice depends on your finances, lifestyle and how long you plan to stay in one place.
Consider mortgage points. One way to get a lower mortgage rate is to buy it down using mortgage points. One mortgage point equals a 0.25% decrease in your mortgage rate. Generally, each point will cost 1% of the total loan amount.
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