Recent forecasts for mortgage rates in 2024 have been ramped higher from previous lower forecasts. Just a few months ago, the pundits were calling for home borrowing costs to end the year in the 6% range possibly. Although the inventory problem has eased, it’s still a barrier. Additionally, economic growth has slowed…Could that be a positive sign for the housing market?
The 6% scenario previously laid out by year-end was when the Federal Reserve was still in the camp of two to three rate cuts this year. Also, at the time, inflation pressures had been somewhat easing but it has since reversed course and resumed its trek higher. Inflation drives borrowing costs higher because it reduces the purchasing power of money. The 30-year fixed rate is now forecasted to hover near the 7% range for the rest of the year.
Low inventories have plagued potential home buyers over the past few years but there has been some progress. Freddie Mac reports that total housing stock was at 146.4 million units as of Q1 2024, an increase of around 1.6 million units compared to last year. However, tight inventory and “higher for longer” rates are key barriers to home sales. Higher for longer rates have been the ongoing rhetoric from the Federal Reserve since mid-April.
The U.S. economy slowed dramatically falling to 1.6% in Q1 2024 from a frothy 3.4% in Q4 2023. Why? The labor market showed signs of cooling with lower growth in consumption expenditures, net exports, and government consumption expenditures. Consumer spending was weaker due to decreased spending on durable goods, primarily autos, and less on gasoline.
Bottom line: Slowing growth, higher for longer, stubbornly higher borrowing costs, sticky inflation and a decline in the hot job market cast a cloud of uncertainty over the housing market with conflicting sentiment. To be competitive in the home buying process, stay positive, be patient, and don’t get discouraged if you face rejection or lose out on a property. There will always be other opportunities.
Source: Mortgage Market Guide
We are ready to help you find the best possible mortgage solution for your situation. Contact Sheila Siegel at Synergy Financial Group today.
