Falling Mortgage Rates: What Lower Inflation and Rate Cuts Mean for 2024

“For now, the big driver of rates will be the economic and inflation data that come out each month.”

Logan Mohtashami
Lead analyst at HousingWire

So far, the new year hasn’t been particularly smooth for the mortgage market. Yet with mortgage rates expected to fall, homebuyers should have an easier time in 2024 than they had last year. 

And that could mean a more positive outlook for the housing market. Even after a slight uptick in mortgage rates after the holidays, mortgage application demand increased the first week in January by 9.9% over the prior week, according to the Mortgage Bankers Association. 

Right now, the average rate for a 30-year fixed mortgage is hovering around 7%, and forecasts show rates inching down to the low-6% range by the end of the year. A lot will depend on the Federal Reserve’s next policy move — specifically when the central bank can start cutting interest rates. 

“For now, the big driver of rates will be the economic and inflation data that come out each month,” said Logan Mohtashami, lead analyst at HousingWire. 

Yet last Thursday’s Consumer Price Index showed the rate of inflation ticking up slightly in December compared to last month. If inflation isn’t under control, interest rate cuts might stay high for longer, which will extend the waiting game for those anxious to buy during the spring homebuying season.

Mortgage rates are expected to go down slowly

Last year was the least affordable housing market on record, according to a report from mortgage brokerage Redfin. So when mortgage rates went on a falling streak in November, it gave market watchers a much-needed boost of optimism. 

Even though the housing market tends to be seasonal, mortgage interest rates are not. Rates move around on a daily, and even hourly, basis in response to a range of factors, including monetary policy, economic data, 10-year Treasury yields and investor expectations. Some fluctuation in mortgage rates is to be expected. That’s why mortgage experts warn against too much optimism. 

Mortgage rates aren’t going to plummet back to pandemic-era record lows. The more likely scenario is a gradual decline of a percentage or more over the year as markets wait for inflation to improve and for the Federal Reserve to make its first interest rate cut.

Here’s a look at where some of the major mortgage forecasters expect mortgage rates to go:

Interest rate cuts will depend on inflation data

For nearly two years, the Fed has been locked in a battle against inflation. After raising interest rates 11 times — increasing the cost of borrowing money across the economy — inflation has cooled significantly, but it’s still far from the Fed’s 2% annual target.

Having kept its benchmark rate steady since July 2023, the Fed has projected three rate cuts this year. That news, combined with other…