A Closer Look at Why Mortgage Rates Are Going Down

There is a lot of speculation on interest rates, the economy’s state, and where it will be when the year ends. Though mortgage rates are currently higher than they were this time last year, they are still below 7%. The average mortgage rate grew 13 points this February, ending at 6.77%. Even with this growth in mind, experts agree that there will be a decline in rates in 2024.

Factors Influencing Mortgage Rates

When the Federal Reserve cuts its fund rates or the rate for overnight lending to credit unions and commercial banks, mortgage rates should start to drop. This is because these rates heavily influence mortgage rates.

The FOMC, or Federal Open Market Committee, voted not to change the federal fund rate in their last meeting. This is the fourth meeting where the rate held steady, with the interest rate range remaining between 5.25% and 5.5%.

In 2022, when the interest rates were hiked to help with inflation, mortgage rates hit their highest levels in decades. With the Fed’s pauses in rate hikes, interest rates have now cooled off. The latest projections from the Fed suggest there will be three rate cuts for 2024. Jerome Powell, the Federal Reserve Chair, stated that cuts will only be implemented once the Feds are confident inflation is steadily working toward the 2% mark. They also take other economic data, such as employment readings, into their decisions.

For a more significant drop in mortgage rates, there needs to be more evidence that inflation is curtailed. Evidence is also needed to show that the economy is back on track. Currently, mortgage rates are in a holding pattern because the data has been inconclusive at best.

Will 2024 Be the Year to Refinance?

During 2020 and 2021, more than 40% of mortgages in the U.S. originated with record lows. In addition, 14 million mortgage refinances happened. For those who got a mortgage during this time, now is not the time to refinance.

If, however, rates were lower than when you first got the mortgage, it may be the right time to refinance. How the rates look at the end of 2024 will depend greatly on what the economy does.

Experts believe that if the rates are cut by the Fed in 2024, refinance volume will climb as those with high interest rates jump at the chance to refinance for lower costs.