Great Rate Expectations

05/14/2024 | New Jersey Mortgage Desk |

May 14, 2024: Home ownership is at 66 percent nationwide. And a huge percentage of those homeowners have fixed rate mortgages significantly below prevailing market rates. These people are effectively “locked-in” which limits their ability to make appropriate financial decisions to either upsize or down size their homes as their life circumstances change. There are about 50 million fixed rate mortgages and most have an interest rate far below prevailing market rates, creating a disincentive to sell. It might take years for this situation to thaw appreciatively enough so the real estate market can start moving again.

As fixed rate mortgages plunged to sub three percent levels the mortgage industry boomed as five years of production got crammed into two years. With a few exceptions loan originators who have not already left the business will be in survival mode for the next couple years. 

Economic forecasting has never been easy and it becomes even more difficult with economic events like COVID-19 lockdowns, trillions of dollars of government intervention, followed by an unprecedented rapid increase of interest rate hikes.

Mortgage rate forecasters at this time last year have been dead wrong about when rates would come back down. It looks like it was nothing more than wishful thinking. 

Currently, most forecasters expect mortgage rates to gradually decrease over the next 18 months as the Federal Reserve presumably begins to lower rates. It is also expected that the bond market will become less volatile, leading to a slight decline in mortgage rates.

The average 30-year fixed mortgage rate as of last week was 7%. By the end of 2025 Fannie Mae expects their rate to go to 6%. Meanwhile, the Mortgage Bankers Association estimates 5.5% 

If these predictions are accurate and when combined with high home prices and the shortage of available homes on the market it is going to be very hard if not virtually impossible for millions of people to become new homeowners in 2024 through all of 2025.

There are always exceptions and some diligent home buyers will keep their focus, save all the money that they can and keep their personal debts to a minimum so they can qualify for maximum mortgage they can afford at these rates. When that unique opportunity comes up they’ll be ready.