The first month of 2024 is nearing its end, but there’s a lot of news buzzing around the housing market and mortgage rates. The housing market has seen gloom in 2023, and homebuyers who have priced out may have a hint of optimism this year. The market now anticipates a 1% mortgage rate decrease before the end of the year.

Anticipated to drop below 6%, mortgage rates have recently made a significant decline from their peak above 8%. However, according to Fannie Mae, analysts anticipate a 5.8% average for 30-year fixed-rate loans by the end of the year. Such a move would certainly provide relief for people who plan to buy a home this year.

Borrowers can anticipate a potential decline in mortgage rates as bond yields continue to decline off of their peak in October. The latest economic data indicates a slowdown in inflation and a cooling economy, prompting the Federal Reserve to consider rate cuts in 2024.

While this could relieve upward pressure on mortgage rates, interest rates may not return to the historic lows of 2020 and 2021. However, the expected rate drop may lead to increased competition and rising home prices, presenting challenges for homebuyers.

Fannie Mae’s Forecast

The housing market, disrupted before the pandemic, saw distorted trends influenced by the aftermath of the Great Recession and COVID-19 buying frenzies. Sales deviated from typical patterns.

According to the prediction made by the Fannie Mae Economic and Strategic Research Group, the housing market balance in 2024 will be more successful. With lower mortgage rates and a decline below 6%, this may be the best time for homebuyers to buy houses. Additionally, the market is expected to get a boost from refinancing and flux existing home sales. That said, the market is projected to hit 4.5 million units sold by Q4 2024.

Although the market is also facing some challenges, new single-family home sales are said to surpass 2023 targets. While home price growth is expected to slow down in mid-2024 by 3.2%, it’s far better than 2023’s 7.1% low. The percentages also show a gradual normalization happening, which homebuyers should look forward to.

The optimistic prediction by Fannie Mae is also supported strongly by the Federal Reserve’s shift in monetary policy. However, there is a sustained pause in rate restrictions, and expectations for lower mortgage rates are not far from happening. However, various factors may impact the shift, such as fluctuations, which need more flexibility.

The ESR Group adjusted its 2024 economic forecast, replacing a modest recession outlook with positive-but-below-trend growth. Positive factors include improved financial conditions post-Fed meeting and rising real personal income. Despite optimism, uncertainties and downside risks persist, with a higher-than-normal recession risk.

Doug Duncan, Fannie Mae’s chief economist, anticipates a gradual recovery in home sales and mortgage activity amid a slow-growing economy. The expectation is for mortgage rates to dip below 6 percent by year-end 2024, aiding affordability. The decline in rates is likely to boost refinancing volumes and purchase financing.

Overall, 2024 is expected to be a better year for homebuyer affordability and the mortgage industry compared to 2023.

Mortgage Payment Expectations 2024

Some experts anticipate stable mortgage rates in 2024, while others expect a slight decline. Predictions vary, with estimates ranging from stable rates to a potential 1% decrease by the end of the year.

As mentioned in the earlier parts of this article, analysts forecast a 30-fixed interest rate drop from the current 6.6%. The drop is said to go as low as 5.75%. So, for example, if a homebuyer aims to buy a house worth $431,000 and gives out a 20% downpayment, they can save about $190 every month. That will be a total of $68,000 in interest savings over the mortgage term.

However, the downside is that home prices may increase, which can offset cost relief. That may vary by region.

That said, for people who plan to buy homes and are looking for potential increases in home prices and sidestep competition, a strategic approach is advised. That may include refinancing or purchasing on the spot. Moreover, replacing a current mortgage with a new one will also help aim a reduced rate or save money from monthly payments.

Buyers who can afford to enter the market now may avoid challenges in the upcoming competitive housing market and subsequently seize the chance to lower housing costs through refinancing when rates decline. It’s crucial to explore options and obtain quotes from various mortgage refinance lenders to secure the most favorable rate.

Factors to Consider

Experts, aside from monitoring the Fed’s influence on mortgage rates, scrutinize various economic indicators. Economic data like consumer spending, GDP growth and inflation are key factors. A slowdown may lead to rate cuts, while a robust economy could maintain or increase rates. Bond yields, closely linked to mortgage rates, are observed for stability.

Real estate data, including housing starts and mortgage demand, are pivotal. Higher housing starts may signal expectations of lower rates, while low mortgage demand has contributed to rate declines, according to experts like Michael Gevurtz of Bluebird Lending and Jeff Lichtenstein of Echo Fine Properties.

Wrapping It Up

Despite mortgage rates reaching a two-decade high, waiting for lower rates may not be the optimal strategy for prospective homebuyers. Currently, most borrowers enjoy rates significantly below the current high levels.

An analysis indicated that 89% of homeowners have mortgage rates below 6%, with 59.4% securing rates below 4%. Although high rates have constrained inventory, the limited influx of buyers has maintained relatively stable prices.

The Fed’s indication of rate cuts in 2024 influenced a decline in mortgage rates by the end of 2023. Opinions differ on the potential for further drops, with some expecting a modest 1% decrease, possibly reaching around 5.5%. Homebuyers face the choice of seizing current conditions or waiting for potential improvements in supply and mortgage rates.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.