The main reason mortgage rates are so high is because the economy is still recovering from the 2008 financial crisis. In order to protect the economy, the Federal Reserve has kept interest rates low to encourage borrowing and lending. This has caused mortgage rates to remain elevated.
However, there is some hope that mortgage rates may go down in 2024. The Federal Reserve has indicated plans to raise interest rates. This could lead to lower mortgage rates.
The economy is improving. This could lead to lower demand for mortgages. Consequently, mortgage rates may also decrease. Homebuyers today are worried about mortgage rates. It is important to answer their questions: Will rates decrease in 2024?
Are you thinking of buying your first home or selling your current one? You are probably asking yourself two important questions: is now a good time to buy a home?
- Will Mortgage Rates Go Down in 2024: Why Are Mortgage Rates So High?
- When Will Rates Go Back Down?
1. Will Mortgage Rates Go Down in 2024: Why Are Mortgage Rates So High?
The question of whether mortgage rates will go down in 2024 requires an examination of the key factors that contribute to their current high levels. One significant influence on the 30-year fixed-rate mortgage is the supply and demand dynamics of mortgage-backed securities (MBS). MBS, or Mortgage-Backed Securities, are investment products similar to bonds. They are bundles of home loans and other real estate debt acquired from banks. This is according to Investopedia. When investors purchase MBS, they essentially lend money to home buyers.
The demand for MBS plays a crucial role in determining the spread between the 10-Year Treasury Yield and the 30-year fixed mortgage rate. Throughout history, there has been an average spread of 1.72 between these two rates, as depicted in the chart below:
Understanding the historical trends and relationship between these rates provides valuable context for assessing the possibility of mortgage rates decreasing in 2024.
To gain further insight into the likelihood of mortgage rates going down in 2024, let’s examine the recent scenario. Last Friday morning, the mortgage rate was reported to be 6.85%. Based on this information, we can calculate that the spread between the 10-Year Treasury Yield and the 30-year fixed mortgage rate was 3.2%. It’s important to note that this spread is approximately 1.5% higher than the historical average.
We can estimate that if the spread were at its norm, mortgage rates would be around 5.37%. This is based on the historical average spread of 1.72%. This estimation is derived from adding the current 10-Year Treasury Yield of 3.65% to the historical average spread.
The current mortgage rates are higher than usual. This is based on the historical relationship between the 10-Year Treasury Yield and the 30-year fixed mortgage rate. Calculations show this to be true. However, it’s crucial to remember that various factors influence mortgage rates, and historical averages do not guarantee future outcomes.
We can assess the possibility of mortgage rates decreasing in 2024 by considering historical spreads and their potential implications. This will provide us with a foundation for our assessment.
The spread between the 10-Year Treasury Yield and the 30-year fixed mortgage rate is highly unusual. This was mentioned earlier. Let us examine the anomaly further. George Ratiu, Chief Economist at Keeping Current Matters (KCM), has shared his insights.
Ratiu states that spreads of over 300 basis points often occur during times of high inflation or economic instability. This has been observed historically. Notable instances of such spreads were observed during the early 1980s and the Great Financial Crisis of 2008-09. These were times marked by substantial economic turbulence.
The graph illustrates the uncommonness of a 300 basis point spread. Such an event has rarely taken place in the past.
The graph highlights how rare such occurrences are, making the current spread an outlier. To better understand the unique situation and its potential effect on mortgage rates in 2024, it’s important to recognize historical trends. Acknowledging these patterns helps us comprehend the atypical situation.
The graph provides valuable insight into the historical trends of spreads, demonstrating how they have decreased after each peak. This pattern suggests that there is potential for improvement in mortgage rates today.
It is essential to understand the causes of the widespread spread and high mortgage rates. To do this, we must consider the factors affecting the demand for mortgage-backed securities (MBS). The demand for MBS is heavily influenced by the perceived risks associated with investing in them. Currently, these risks are influenced by broader market conditions, such as concerns about inflation and the potential for a recession. The Federal Reserve’s interest rate hikes were intended to reduce inflation. Headlines which highlighted negative stories about home prices added to the risk perception. Other factors also contributed to this feeling of insecurity.
MBS stands for Mortgage-Backed Securities. When the risk associated with them is low, the demand increases.
This leads to lower mortgage rates. Conversely, when there is higher risk associated with MBS, the demand decreases, resulting in higher mortgage rates. At present, the demand for MBS is low, which explains the high mortgage rates experienced.
We can gain insight into the current market dynamics by understanding the relationship between risk, demand for MBS, and mortgage rates. This allows us to better evaluate the potential for mortgage rates to decrease in 2024.
2. When Will Rates Go Back Down?
Odeta Kushi is the Deputy Chief Economist at First American. She has offered her perspective on the question of whether mortgage rates will decrease in 2024.
In her latest blog post, she argued that the Federal Reserve should relax its restrictive monetary policies. This would provide more assurance to investors. It is expected that this would lead to lower economic impact and home loan interest rates later in the year.
However, Kushi also notes that it is unlikely for the spread to return to its historical average of 170 basis points. This indicates that, even if the spread retreats, certain risks are likely to remain. These risks will continue to have an effect on the mortgage rate environment.
By considering Kushi’s insights, we gain a better understanding of the potential trajectory of mortgage rates in 2024. It is possible that rates may decrease. However, it is important to recognize that some risks are likely to persist. This will shape the lending landscape.
Bottom Line
Investor fears are expected to subside. This will cause the spread between the 10-Year Treasury Yield and the 30-year fixed mortgage rate to shrink.
This was previously discussed. This reduction in spread suggests that mortgage rates may moderate as the year progresses. Investors typically feel less afraid when demand for mortgage-backed securities (MBS) increases. This can lead to lower mortgage rates.
However, it’s important to note that forecasting mortgage rates with absolute certainty is a challenging task. Numerous factors, including economic conditions, market dynamics, and policy decisions, can influence mortgage rates in unforeseen ways. As a result, accurately predicting the exact trajectory of mortgage rates is inherently uncertain.
However, it’s important to note that forecasting mortgage rates with absolute certainty is a challenging task. Numerous factors, including economic conditions, market dynamics, and policy decisions, can influence mortgage rates in unforeseen ways. As a result, accurately predicting the exact trajectory of mortgage rates is inherently uncertain.
Anticipating potential trends based on historical patterns and market indicators can help us understand mortgage rate forecasting. However, we must acknowledge the unpredictable nature of this process. As the year progresses, it is important to monitor economic developments and expert analyses. This will give us valuable insights into the direction of mortgage rates in 2024.
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Fri, 09 Jun 2023 21:34:33 +0000
by Mottek Group