Mortgage rates inch up, but experts still predict declines through 2024
The average rate on a 30-year loan ticked up to 6.69%.
The average rate for a 30-year mortgage loan rose to 6.69% from 6.60% a week prior, according to Freddie Mac on Thursday. Mortgage costs have retreated more than 110 basis points over the last three months since the peak of 7.79% in October.
That trend is boosting hopes for improved affordability as rates are poised to drop despite this week's minor climb.
While rates are still hovering around mid-6% — significantly higher than the average in 2021 and 2022 — consumers are becoming increasingly active in the housing market. More buyers are applying for mortgages, signifying a belief that home prices will retreat along with mortgage rates.
"We do have home sales, and particularly existing home sales, [forecasted] to pick up around 4% this year," Mark Palim, vice president and deputy chief economist at Fannie Mae, told Yahoo Finance. "We have a little bit higher of a pickup in 2025, by nearly 14%, because by then, the lower mortgage rates would have worked their way through the system."
Read more: Mortgage rates below 7% — is this a good time to buy a house?
Homebuyers see a glimmer of hope
Homebuyers are trickling back into the housing market as the level of mortgage applications increased by 3.7% from a week prior, according to the Mortgage Bankers Association (MBA) in its weekly survey ending Jan. 19.
The seasonally adjusted purchase index — measuring new home loans — jumped 8% week over week. However, the unadjusted purchase index remains 18% lower than the same week a year ago, and refinance activity is also 16% lower than the previous week.
"Conventional and FHA purchase applications drove most of the increase last week as some buyers moved to act early this season," said Joel Kan, MBA's vice president and deputy chief economist. "Refinance applications declined over the week and remained at low levels. There is still little incentive for homeowners to refinance with rates at these levels."
Read more: Mortgage refinancing: How to get started
An upswing in buyers' mortgage activity paralleled an increase in homebuyers' confidence. Americans are feeling more optimistic about the housing market, according to the latest Home Purchase Sentiment Index (HPSI) surveyed by Fannie Mae in December. The share of respondents believing now is a "good time" to buy a home increased three percentage points to 17% from 14% a month earlier.
Economists attributed the growing positivity to consumers' belief that mortgage rates will fall — bringing home prices with them.
"Mortgage rate optimism increased dramatically this month, with a survey-high share of consumers anticipating mortgage rate declines over the next year," Palim said. "A more optimistic rate outlook among consumers may signal an expectation that home affordability pressures will ease in 2024."
Rates projected to drop below 6% by year-end
Economists at Fannie Mae predicted that slowing economic growth in 2024 will bring rates down to around 5.8% by the end of the year.
"Part of [the rate cut] is the slow growth that we see across this year, and part of it is the Fed easing," Doug Duncan, Fannie Mae chief economist, told Yahoo Finance. "We do have [the expectation of] the Fed cutting rates four times this year."
But the first cut may come later than expected. Consumer prices increased 0.3% month-over-month and 3.4% annually in December. Overall price growth remained higher than the Fed's targeted 2% even after last year’s rate hikes, suggesting that inflation is stickier than previously thought.
"With economic activity and labor markets in good shape and inflation coming down gradually to 2%, I see no reason to move as quickly or cut as rapidly as in the past," Christopher Waller, Federal Reserve governor, said last week in a speech at the Brookings Institution in Washington.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
Read the latest financial and business news from Yahoo Finance