The Federal Reserve’s recent decision to hold its short-term policy interest rate steady at a range of 5.25% to 5.5% is good news for the housing and mortgage markets. This marks the fourth pause recorded in 2023, and Federal Reserve Chairman Jerome Powell has indicated that the Fed anticipates making three 25 basis point rate cuts in 2024, signaling that hikes are over and a new phase in monetary policy is approaching.
The bond market responded positively to this announcement, with the 10-year Treasury yield falling to 4.0%, its lowest level since late July. Experts believe that this path for monetary policy should support further declines in mortgage rates, which is particularly timely for the upcoming spring housing market. While mortgage rates remain high, this rate relief is expected to bring some relief to rate-sensitive homebuyers.
The housing market has experienced challenges due to the Fed’s monetary policy in 2023. Mortgage originations have declined nearly 37% year-over-year, and dozens of lenders have gone out of business or been forced to merge. However, economists in the housing space see better days ahead. Realtor.com’s Chief Economist, Danielle Hale, forecasts mortgage rates to ease further in 2024 as inflation improves and Fed rate cuts draw closer. Hale predicts that mortgage rates could near 6.5% by the end of the year, providing affordability relief to homebuyers.
Reduced interest rates would particularly benefit homeowners who are currently making payments on mortgages with high rates. According to TransUnion data, millions of new mortgages were originated with interest rates of 6% or higher since January 2021, totaling over $1 trillion in balance. Refinancing at a lower rate, such as 5.5%, could result in significant savings for these homeowners. Michele Raneri, VP of U.S. research and consulting at TransUnion, explains that homeowners could save an average of $284 every month, giving them more flexibility in a high-cost-of-living environment.
Overall, the Federal Reserve’s decision to signal the end of rate hikes in 2024 is expected to bring relief to homebuyers and support growth in the housing and mortgage markets. As mortgage rates ease, it opens up opportunities for prospective buyers and provides savings for current homeowners with high-interest mortgages.
MORTGAGE RATE ROUND-UP FOR 2023
On the week ending on December 14th, the average for a 30-year fixed-rate mortgage (FRM) fell to 6.95% from 7.03% the previous week, marking the 7th straight week rates have fallen for these loan types. Take a look at the tables below to see a month-by-month round-up of 30 and 15-year FRM averages over the year 2023.
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