We’ve seen significant swings in interest rates, from historic lows to sudden surges, all while central banks carefully strategize in response to world events. To put it into perspective, the year 2022 began with the average 30-year fixed rate at a modest 3.22% in January, only to skyrocket to a staggering 7.76% by November 2023.
Despite industry professionals advising buyers to take advantage of the low interest rates, many postponed waiting on prices to fall. It’s just human nature, right? To want your cake and eat it, too. Sadly, the window closed quickly on low rates and overall prices did not fall. Sure, some prices fell, but this was not unlike a “normal” market where sellers list high just in case there is someone out there willing to pay more than a home is worth. Who can blame a seller for vying for top dollar having just witnessed an unprecedented seller’s market/ We vividly remember those “bidding war” days and have quite a few war stories of our own.
Overall, 2023 mortgage rates were as popular as a rainy day at the beach. Throughout the year, the 30-year fixed mortgage rate fluctuated within the range of 6% to 7%. At the outset of September, mortgage rates stood just above 7%, but by November they had climbed to the mid-7% range, as reported by Freddie Mac. This marked the highest rate recorded since the year 2000! Current rates are more than double their all-time low of 2.65% (reached in January 2021). But if we take a step back and look at rates over the long term, they’re still close to the historic average.
So what can we expect for 2024? Before we go there, let’s first focus on what we can control and what we cannot. Those buyers who purchased over the last year while interest rates were “too high” had an advantage - less competition. The bidding wars had ended so a savvy buyer simply looked at the bright side of the coin and decided it was much easier to 1) buy a home; and 2) keep the price low. While the interest rate did increase their monthly payment, a competitive bidder was not.
Other considerations when preparing to purchase a home include working with a reputable lender to get your finances in shape. Borrowers with healthy credit profiles and strong finances often get mortgage rates well below the industry norm and more times than not there are steps that can be taken to increase your credit score in a relatively short period of time.
As we look toward the new year, forecasting the precise trajectory of mortgage rates has become increasingly difficult. In its most recent forecast, Realtor.com stated it believes mortgage rates will average 6.8% overall in 2024 and reach a low of 6.5% by the end of the year.
Most forecasting models predict that mortgage rates will remain above 6% in 2024, potentially dropping further in 2025. Whether or not the Federal Reserve loosens its monetary policy will play a significant role in determining the direction of interest rates. And let’s not forget that 2024 includes a very important election.
What’s our advice? Unless you are clairvoyant, it doesn’t make much sense to try to time your rate in this market. Our best advice is to buy when you are financially ready and to purchase the home you can afford - regardless of current interest rates.
Remember, you’re not stuck with your mortgage rate forever. If rates drop significantly, homeowners can always refinance later on to reduce costs and there are many lenders currently offering incentives that include waiving refinancing fees. Also bear in mind that there are some properties where sellers are offering closing cost assistance or money to buy down your interest rate. Referred to as discount points, this is yet another tool in the toolbox to help you acquire the home of your dreams at the price you can afford.
Bottomline, we hope you are able to buy a home before interest rates fall and buyers come out of the woodwork!
Call us today to start your home search.
