Updated Housing Market and Mortgage Rates Forecast
This guide will cover mortgage rates forecast from 2021 going into 2023 through 2024. This blog was written in March 2021 and updated on June 11th, 2023. Mortgage rates have been skyrocketing to historic levels since 2021. Will mortgage rates continue to go up? Mortgage rates forecast depends on many factors — the economy, soaring out-of-control inflation, and worldwide. Is the coronavirus scare over, or will politicians bring another fear-mongering tactic?
This article will track where mortgage rates were in 2021 and where mortgage rates are today. Many people tend to forget rates were in the low 3% in 2021. Today, mortgage rates are exceeding 7%.
Is the coronavirus vaccination mandate over, or will it keep on continuing? Housing demand is high nationwide despite the volatile economy and high rates. Rates have soared to higher than 7% with no signs of correction. Home sellers are still experiencing bidding wars. Demand for homes is forecasted to continue through 2024 into 2025. This article contains leading experts’ mortgage rates forecast for the six months into 2024.
What mortgage rate do YOU qualify for? Find out now.
How High Have Mortgage Rates Increase Since 2021
The chart below shows what mortgage rates have done over the last year. In 2021, mortgage rates have bumped up and down, but the trend overall has been upward. Mortgage rates in March 2021 have already exceeded some 2021 year-end predictions. Remember that this blog was originally written in March 2021, and today is June 11th, 2023. Rates have almost doubled since 2021:
If mortgage rates follow their current trend, we see average 30-year fixed rates hitting 3.25% in April — they are currently hovering between 3.05% and 3.15%.
Understand that these are average rates for the most highly-qualified applicants; most borrowers pay higher rates than the rock-bottom rates lenders advertise. The best mortgage rate for you is the least-expensive combination of fees and interest rates. That depends on your credit rating, loan-to-value, and the number of years in which you plan to keep your loan.
Updated Mortgage Rates Forecast
If mortgage rates continue on their current path, we’re likely to see significant increases in the second quarter of 2021. If the US coronavirus vaccine rollout continues to progress the way it has recently, President Biden and Dr. Fauci have stated that we’ll see more normalcy this summer and be able to gather in small groups for Independence Day on July 4th.
As the economy opens up this summer, it will likely heat up and take interest rates with it. According to Freddie Mac, 30-year fixed mortgage rates averaged 3.47% in February 2020 before COVID-19 put the US economy on lockdown and have been as high as 3.88% in the last 12 months, according to Mortgage News Daily.
It’s reasonable for mortgage rates to return to those highs once the economy is on firmer footing and consumers unleash their pent-up demand on the real estate, travel, automotive, restaurant, and other industries. A return to rates near the 3.88% level by the end of June is not unlikely.
Mortgage Rates Forecasts in 2021
Many forecasters adjusted their 2021 mortgage rates forecast in recent weeks. Here are a few from the experts.
Mortgage Bankers Association (MBA)
On March 22, 2021, the MBA predicted that 30-year mortgage rates would climb to 3.6% by year’s end. Here is the MBA’s latest mortgage rate forecast for 2021 by quarter:
- Q1, 2021: (2.9%)
- Q2, 2021: (3.2%)
- Q3, 2021: (3.4%)
- Q4, 2021: (3.6%)
Freddie Mac
Freddie Mac analysts are much more optimistic, guessing that 30-year fixed mortgage rates will hit 2.9% by year-end. It’s worth noting that Freddie’s weekly rate survey is already at 3.17% as of this writing.
Fannie Mae
Fannie Mae’s quarterly forecast is as follows:
- Q1, 2021: (2.9%)
- Q2, 2021: (3.1%)
- Q3, 2021: (3.1%)
- Q4, 2021: (3.2%)
This is likely to be missed as current 30-year average rates are already higher than forecast for Q2 and Q3, and the economy hasn’t started yet.
National Association of Realtors (NAR)
The NAR is optimistic, expecting mortgage rates to hit 3.10% by year-end. Most trackers that we’ve already pushed through that level.
National Association of Home Builders (NAHB)
The NAHB predicts an average mortgage rate of 3.25% by year-end.
Wells Fargo Bank
Wells Fargo analysts believe that mortgage rates will hit 3.55% by the end of 2021.
Gustan Cho Associates Mortgage Rates Forecast
Looking at the above expert mortgage rates forecast and adjusting for current economic conditions, we calculate that average 30-year fix-rate mortgages will hit 3.45% by year-end 2021
Mortgage Rates Forecast: What the Fed Said in 2021
The Federal Reserve does not “set” mortgage rates when its Federal Open Market Committee (FOMC) meets monthly. Instead, the Fed attempts to control inflation by increasing or decreasing its Federal Funds rate — the rate it charges for overnight loans to banking institutions.
When the FOMC is concerned about economic weakness, it keeps interest rates low to encourage buying, financing, and hiring. When the economy is doing well and heating up, the Fed raises its target interest rate to slow economic activity and keep inflation under control.
Investors, lenders, and borrowers pay close attention to the Fed because its announcements often provide clues about the timing and extent of future interest rate increases.
How The Federal Reserve Board Impact Mortgage Rates Forecast
Following their most recent meeting, the Federal Reserve promised to keep interest rates low. It decreases mortgage rates by purchasing long-term Treasury bills and mortgage-backed securities (MBS). Currently, the Fed buys $80b in Treasuries and $40b in MBS each month.
The FOMC also promised to keep the Federal Funds rate near 0%, which has nothing to do with mortgage rates but does affect short-term borrowing, the Prime Rate, and some home equity loans.
Keeping the Federal Funds rate low can push mortgage rates up. That’s because cheaper borrowing leads to more spending and more spending leads to inflation, and concerns about possible inflation lead to higher interest rates. Investors who believe that inflation is coming start requiring higher rates of return or won’t buy bonds or MBS. No one wants to be earning 2.5% in a 3.5% world. That’s what’s happening now, and there is no reason to believe it won’t continue into the summer.
What Factors Drive Mortgage Rates?
Several factors determine what mortgage rate you’ll be offered. Here are the ones you can control:
- Credit rating — higher credit scores mean lower mortgage rates
- Loan-to-value (LTV) — higher LTV ratios come with higher interest rates.
- Loan amount — Large “jumbo” mortgages generally have higher interest rates than smaller “conforming” mortgages.
- Mortgage program — loans with shorter fixed-rate periods, like 15-year fixed loans or 5/1 hybrid ARMs, come with lower mortgage rates than 30-year fixed loans.
- Property type — riskier property types like high-rise condos, manufactured homes, and mixed-use developments can cost more to finance.
- Property use — primary residences are the cheapest to finance, while second homes and investment properties cost more.
What Affects Housing Markets and Mortgage Rates Forecast
In this section, we will cover the factors over which you have no control: The global economy — events like a pandemic, terrorist attack, war, or a country going bankrupt can make investors uneasy and lower interest rates. That’s because investors want to put their money somewhere safe when things get shaky and don’t care much about how much they earn. John Strange, a secondary mortgage market expert at Gustan Cho Associates, explains changes in lenders’ policies:
You can’t change a lender’s policy, but you can compare offers from multiple companies to ensure you’re getting a fair deal. The Fed — as noted above, the Fed’s actions can cool or heat the economy.
When the economy heats, mortgage rates rise. When it cools, mortgage rates fall. Higher demand for safe things like Treasuries and MBS decreases prices and rates. Lender policy — mortgage lenders are private businesses that set their rates according to how much they want to earn per loan, how much capacity they have, and how much risk they are willing to take.
How to Get Lower Mortgage Rates
The sooner you begin preparing to buy a home and apply for a mortgage, the more chance you have to lower your mortgage rate. First, check your credit report and score. If your report contains errors that are dragging your score down, contact the three major credit bureaus to have them removed. Your lender may be able to help you with a ‘rapid re-scoring” service.
Adding even one point to your score could make a difference. Most lenders price their loans in tiers — applicants with FICOs from 620 – 639 pay a higher rate than those with scores of 640-659, and so on. Moving from a 679 FICO to a 680 FICO can save you thousands of dollars.
Increasing your down payment can also lower your mortgage rate. Putting 5% down instead of 3% or 10% instead of 5% can make a real difference in your payment. Try applying for down payment assistance to increase your down payment. You can also free up money for a larger down payment by negotiating with the seller to pay your closing costs. That can save you much more money than negotiating a lower sales price.
Updated Mortgage Rates For 2023
This article is an update from a 2021 mortgage rates forecast piece. We wanted to share with our viewers where our sources forecasted 2021 and today’s mortgage rates. You can confidently say that mortgage rates have doubled since 2023 and 2021, says Dale Elenteny, who has closely followed mortgage rates and the secondary mortgage markets. Dale explains discount points:
Discount points was unheard of prior to the skyrocketing rate hikes and volatile secondary mortgage markets. You can get a lower rate by buying down rates with paying discount points to “buy down” your rate. That’s not generally a great idea unless you expect to keep your home for many years.
Choosing a shorter fixed loan term can get you a lower rate — ask your lender about the rate for a 15-year fixed loan or a 5/1 hybrid ARM. Check with your loan officer. Often, he or she has access to programs from many lenders and can find a program that’s cheaper for you based on your needs.
