Predictions for Decline in Mortgage Interest Rates and Increase in Home Prices
Studies predict that mortgage interest rates will decline next year, while analysts expect home prices to rise at a moderate pace. Based on interest rates, home prices, and household income, homes should become 5% more affordable by the end of 2024, according to estimates from one economist. Since 2022, mortgage interest rates have risen significantly, and home prices have continuously increased, making it very difficult for first-time buyers to afford monthly mortgage payments.
What About Future Interest Rates?
Although it is difficult to estimate mortgage interest rates for next year, there are some signs that indicate a decline. As inflation eases, Federal Reserve officials have held the benchmark rates that affect all types of credit, including mortgages. Officials are expected to take no action this month again and may not raise interest rates in this cycle. In fact, it is widely expected that the central bank will lower interest rates at some point next year. Mortgage interest rates are also influenced by 10-year Treasury yields, which fluctuate according to investor concerns about inflation. These yields fell to 4.3% as of Monday after reaching 5% in late October.
Will Homes Become More Affordable in 2024?
Regarding prices, Fannie Mae expects an annual increase of 2.8% by the fourth quarter, which is close to the typical rise of 3% to 4% that occurs in normal years. When this increase is combined with continuously rising wages, it means that first-time buyers should find purchasing homes 5% more affordable compared to the current time. When Fleming and other housing economists talk about affordability, they are mainly referring to the expectations of renters who wish to buy, not current homeowners. “Current homeowners are not in a tough spot,” says Fleming. “Current homeowners are not facing a high-interest rate market. They have secured lower rates. They are quickly gaining home value. They’re not losing affordability because they’re gaining equity.”
Housing Supply Remains a Major Issue
But do not expect affordability to improve significantly even if mortgage interest rates decline. The last time rates dropped to a low level, prices soared significantly. According to Fleming’s analysis, there is only one thing that will decrease prices, which is fixing the “supply” side of the supply and demand equation through building more homes. The United States has built too few homes over the decades. Since 2012, 2.3 million additional households have been formed compared to the number of homes built, according to an analysis from Realtor.com. As long as there are significantly more people needing homes compared to the available homes, the market will not function well.
Source: https://www.investopedia.com/houses-will-get-a-bit-more-affordable-in-2024-forecasters-say-8410354
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