When Will Mortgage Rates Go Down? A 2024 Outlook After the Fed's Decision

Based on the latest Federal Reserve commentary, mortgage rates are expected to remain elevated in the near term before beginning a gradual decline later in 2024. The Fed's decision to hold interest rates steady and signal that a March cut is unlikely means that mortgage rates will stay higher for longer than some buyers had hoped. However, broader economic trends still point toward modest relief for the housing market by the year's end.

Why Did the Fed Decide to Keep Rates High?

During its January 31 meeting, the Federal Open Market Committee (FOMC) held the federal funds rate at its current level, which is near a two-decade high. This rate influences the cost of borrowing across the economy, including for mortgages. Fed Chair Jerome Powell indicated that a rate cut in March is not the central bank's likely course of action. The Fed is prioritizing two key economic indicators: inflation and the labor market strength. Although inflation has been moving toward the Fed's 2% target, officials need more consistent data to be confident that it is under control before reducing rates. This cautious approach means the earliest probable rate cut is now projected for May, contingent on positive economic reports.

How Does the Fed's Decision Directly Affect Mortgage Rates?

Mortgage rates are not set by the Fed but are heavily influenced by its policy and the overall economic outlook. When the Fed signals that it will maintain higher rates to combat inflation, it often leads to an increase in yields on the 10-year Treasury note, which mortgage rates typically follow. Immediately after the January 31 announcement, market reactions confirmed this trend, with interest rates rising. However, a separate announcement from the U.S. Treasury provided a counterbalance. The Treasury stated it does not plan to increase the supply of Treasuries, which can help keep government bond prices higher and their yields—and by extension, mortgage rates—from rising too sharply. In the short term, these opposing forces may cause mortgage rates to hold relatively steady.

What Can Homebuyers and Sellers Expect in 2024?

For individuals active in the real estate market, the immediate weeks ahead are likely to see little change. The next significant milestone will be the Fed's mid-March meeting, where updated economic projections could create volatility. Chair Powell has stated that the Fed will communicate its intentions ahead of time, allowing markets to adjust gradually. Looking at the full year, the consensus view is that the Fed will begin cutting rates in 2024. Based on our experience assessment, this should lead to a gradual decline in mortgage rates as the year progresses, making home financing more affordable by the fourth quarter. This outlook is supported by forecasts from Freddie Mac and other industry analysts who project a downward trend, though not a sharp drop.

Practical Advice for Navigating the 2024 Market

For buyers and sellers, a patient and informed strategy is essential.

• For Buyers: Use this period of stable-but-high rates to strengthen your credit score and save for a larger down payment. Getting pre-approved now will give you a clear budget and position you to act quickly when rates do begin to fall.
• For Sellers: Understand that buyer affordability is still constrained. Price your home competitively based on recent comparable sales in your neighborhood to attract serious offers in the current climate.
• For Everyone: Monitor announcements from the Federal Reserve and key economic reports on inflation and employment. These will be the primary drivers of mortgage rate movement throughout the year. While the exact timing is unpredictable, the general expectation for lower rates by late 2024 provides a helpful framework for decision-making.