Mortgage rate predictions have become a hot commodity on Wall Street following the release of the July jobs report and accompanying speculation of rate cuts to come. Indeed, analysts believe the Federal Reserve is nigh guaranteed to lower interest rates in September.
What does this mean for mortgage rates?
Well, expect mortgage rates to fall. In fact, they’re already on the way down. In the past week, the 30-year rate has fallen to its lowest level in 15 months, pricing in expectations of a September cut. The 30-year rate is currently trending at around 6.47%, having fallen about 25 basis points according to a survey of lenders released by Freddie Mac. This marks the lowest level for home loans since May 2023.
Still, it’s unclear where mortgage rates will end up after the Fed concludes its rate-cut cycle, either this year or next. The nature of the Fed’s rate cuts will determine just how far mortgage rates will fall.
While it’s hard to know just how low the Fed will take the benchmark rate, we can use its previous near-zero level, dating back to 2020 and 2021, to predict mortgage rates.
During the pandemic and a bit after, the 30-year dropped to around 3%, reflecting a near 0% terminal rate. While the Fed is unlikely to take the benchmark rate that low again absent another economic downturn, we can safely assume it will fall at least 100 basis points from its current 5.25%-5.50% level.
This can be derived from current projections from the CME Fed Watch tool, which is currently pricing in a 46% chance the benchmark rate ends 2024 between 4.25% and 4.5%, the highest probability outcome about 100 basis points lower than its current range.
Mortgage Rates Predictions 2024
Now, this doesn’t necessarily mean that the Fed’s rate-cut campaign will conclude after 100 basis points. In fact, the CME tool estimates there’s a roughly 71% chance the benchmark rate drops to 4.25% and under upon the conclusion of the January Fed meeting. This includes a nearly 4% chance the benchmark rate drops to between 3.5% and 3.75%.
This should mean that the 30-year will drop to about 6% before the end of the year, at least according to Melissa Cohn, regional vice president of Williams Raveis Mortgage.
“For most borrowers, mortgage rates will drop to 6% when we have at least another month of data showing that inflation is cooling,” Cohn told CBS. “In some cases, we are already very close. I locked in a client this week on a VA loan at 6.125% with 0 points.”
Indeed, some economists believe the 30-year rate is destined to drop below 6%, assuming economic data continues inching the country toward a potential slowdown.
“For rates to drop below 6%, we will need to see a slowing of our economy, reductions in the other markets and Fed rate cuts,” said Logan Mohtashami, lead analyst at HousingWire. “Until investors don’t feel safe with what they are doing now, they have no need to purchase from the MBS markets.”
On the date of publication, Shrey Dua 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
