Mortgage Rates and Loan Availability: What to Expect in the Year Ahead

By Bob Jones Apr23,2024
Home Buying still out of reach
Home Buying Still Out of Reach

As the US housing market transitions, prospective homebuyers and homeowners alike are closely watching mortgage rate trends and loan availability trends. After a tumultuous period of rapid rate hikes, the outlook for the next 12 months suggests a more mixed picture, with both opportunities and challenges on the horizon.


Current Mortgage Rate Landscape

The current state of mortgage rates in the US is one of relative stability, albeit at elevated levels compared to recent history. As of April 2024, the average rate on a 30-year fixed-rate mortgage was hovering around 7.05%, according to Bankrate data.

This represents a significant increase from the sub-3% rates seen during the height of the pandemic housing boom in 2021. However, it also marks a slight pullback from the peak above 8% in late 2023.

“Mortgage rates have been on a bit of a rollercoaster ride over the past couple of years, but they do appear to have stabilized in the 7% range for now,” says Jessica Chen, a mortgage loan officer in Los Angeles. “While still high compared to historical norms, this is an improvement from the extreme volatility we saw in 2023.”

The rise in mortgage rates has had a tangible impact on affordability, pricing many prospective buyers out of the market. However, the moderation from the peak levels has provided some relief, and experts believe this trend may continue in the months ahead.

Mortgage Rate Projections for the Next 12 Months
Looking ahead to the next 12 months, industry experts agree that mortgage rates are likely to decline gradually but not to the sub-3% levels seen in 2021.

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“We’re not expecting a dramatic drop in rates, but rather a more gradual easing over the next year or so,” explains Chen. “Most forecasts suggest we could see 30-year fixed rates in the low 6% range by the end of 2024, which would be a welcome development for buyers.”

According to the latest projections from the Federal Reserve, the central bank is expected to cut interest rates three times in 2024, which should help put downward pressure on mortgage rates. The Fed’s benchmark federal funds rate, which directly influences mortgage rates, is currently at a 23-year high of 5.25%-5.5% but is expected to reach around 4.25% by the end of 2024.

“The Fed’s rate cuts, combined with a potential cooling of inflation, should translate to lower mortgage rates over the next 12 months,” says Chen. “However, it’s important to note that rates are still likely to remain elevated compared to the sub-3% levels we saw just a couple of years ago.”


Factors Influencing Mortgage Rates

Various economic factors, including inflation, the strength of the labor market, and the overall direction of the broader economy, will shape the trajectory of mortgage rates in the coming year.

Inflation, a persistent challenge in recent years, is a crucial variable. If the Federal Reserve successfully tries to control inflation, it could pave the way for more aggressive rate cuts and a corresponding decline in mortgage rates.

“Taming inflation is going to be crucial for the path of mortgage rates,” explains Chen. “If the Fed can make meaningful progress, it would provide a tailwind for rates to come down further.”

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The strength of the job market is another crucial factor. A robust labor market, with low unemployment and steady wage growth, can contribute to inflationary pressures and make the Fed more reluctant to cut rates aggressively.

“If the economy remains strong, with low unemployment and solid consumer spending, that could limit the extent of rate cuts and keep mortgage rates from falling as much as some buyers might hope,” says Chen.


Loan Availability and Underwriting Standards

In addition to the trajectory of mortgage rates, prospective borrowers will also need to consider the availability of loans and the underwriting standards lenders are applying.

During the pandemic housing boom, lenders were often eager to extend credit, with relatively relaxed underwriting standards. However, the current higher rates and economic uncertainty environment have led to a more cautious approach from many lenders.

“We’re seeing lenders tighten up their underwriting criteria, with a greater focus on factors like credit scores, debt-to-income ratios, and down payments,” explains Chen. “Some buyers may have a harder time qualifying for a loan, even if rates come down slightly.”

That said, the lending landscape remains relatively healthy, with a wide range of loan products and programs available to borrowers. FHA, VA, and conventional loans continue to be popular options, and many lenders are also offering specialized programs for first-time buyers, low-income borrowers, and those with unique financial circumstances.

“The key for buyers is to work closely with a knowledgeable mortgage professional who can help them navigate the current lending landscape and identify the best loan options for their needs,” advises Chen.

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Strategies for Buyers and Homeowners

Given the mixed outlook for mortgage rates and loan availability, prospective buyers and current homeowners must carefully consider their strategies in the coming year.

The gradual decline in rates may provide some relief for buyers, but the ongoing affordability challenges and tighter underwriting standards will still require a proactive and flexible approach.

“Buyers need to get pre-approved, understand their budget, and be prepared to act quickly when the right opportunity arises,” says Chen. “They should also be open to exploring alternative loan programs and be willing to compromise on certain home features if necessary.”

Current homeowners, on the other hand, may be in a more advantageous position, mainly if they can take advantage of potential rate declines.

“Homeowners who are considering a refinance or a move to a new home should keep a close eye on rates and be ready to act when the time is right,” explains Chen. “Even a modest decline in rates can translate to significant savings over the life of a mortgage.”

Ultimately, the housing market landscape in the next 12 months will be shaped by a complex interplay of economic factors, with both opportunities and challenges for borrowers. By staying informed, working with experienced professionals, and adopting a strategic approach, buyers and homeowners can navigate this evolving landscape and achieve their real estate goals.


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