Could mortgage rates end the year below 6%?


After the Federal Reserve lowered benchmark interest rates by 50 basis points last week, mortgage rates continued to move lower, although at a slower pace compared to recent weeks.

At HousingWire‘s Mortgage Rates Center on Tuesday, the average 30-year conforming loan rate was 6.25%, down 9 basis points from a week ago. The 15-year conforming loan rate shed another 19 basis points during the week and now averages 5.60%.

At the start of 2024, HousingWire Lead Analyst Logan Mohtashami forecast a range of 5.75% to 7.25% for 30-year rates by the end of the year based on a variety of economic outcomes. On Saturday, Mohtashami wrote that rates could slide lower than his best-case scenario due to a softening labor market and narrowing spreads between 30-year mortgage rates and 10-year Treasury yields.

“The mortgage spread story has been positive in 2024, whereas it was negative in 2023,” he wrote. “We have seen a big move, which has helped, and we still have some runway left to return to historical norms. This can help get mortgage rates down toward 5.75%.”

Further declines in mortgage rates are likely needed to unlock more home sales. The National Association of Realtors (NAR) reported last week that the annualized rate of existing-home sales fell 2.5% on a monthly basis and 4.2% on a yearly basis in August. New homes, while representing a much smaller slice of the market, are on a different sales trajectory as the annualized rate rose 10.6% month over month and 5.6% year over year in July.

Noah Rosenblatt, co-founder of New York City-based real estate analytics firm UrbanDigs, said in a statement that while sales activity has improved in recent months, the housing market has yet to fully stabilize at a healthy level.

“We still have election uncertainty, local policy uncertainty and geopolitical uncertainty that are weighing on investors’ and buyers’ minds that could dampen the depth and duration of this recovery,” Rosenblatt said.

Rising home prices in many areas of the country continue to negate lower mortgage rates as prospective first-time buyers run into affordability issues. On Tuesday, the S&P CoreLogic Case-Shiller home price index reached another all-time high, although the pace of growth slowed to 5% year over year in July.

On top of that, existing homeowners have little incentive to reenter the market. A Redfin analysis of Federal Housing Finance Agency data released last month showed that six in seven mortgage holders have rates below 6%.

“[Sellers] are reluctant to take on a new mortgage at a higher rate, even if they could sell for a good price now,” Petar Vojvodic, an agent with Coldwell Banker Warburg, said in a statement. “I expect this trend to persist, especially if the Fed doesn’t make more substantial cuts.”

Later this week, the U.S. Bureau of Economic Analysis is set to release new gross domestic product data and the Personal Consumption Expenditures (PCE) Index. But according to Afifa Suburi, a capital markets analyst at Veterans United Home Loans, these datasets are unlikely to affect mortgage rates due to the recent consistency in economic growth and inflation data.

“Any movement in the bond market is likely to come from Fed speak, some of which we have already witnessed. Putting aside the daily marginal moves in bond prices, rates remain at their best levels of the year,“ Saburi said in a statement.

In an interview with HousingWire last week, Better chief financial officer Kevin Ryan said that Fed policymakers appear to be much less concerned now by inflation than with the labor market. This should remove some uncertainty from policy decisions, but officials aren’t unanimous on the number of cuts or the pace of cuts in the coming months.

“The Fed presumably will continue to stay data dependent within this recalibration thing,“ Ryan said. “[Fed Chair Jerome Powell] is trying to get to a neutral rate, it seems like, from the press conference, which makes sense. And the slope at which they get there will be the data dependency.

“I see a slowly thawing housing sector,” he added. “If you wake up in 18 months’ time, you’re going to have rates materially lower.”



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