Aug. 9 was an interesting day. Manatee County was still cleaning up from the flooding and record-breaking rain from Debby and the mortgage rates hit the lowest level in over a year. What’s the connection? Well, you can’t predict a storm and you can’t predict mortgage rates.
We’ve been waiting for a long time for the day when we see interest rates decrease in any meaningful way. Well, it happened, but will it stick and will it shepherd in more rate cuts?
The average 30-year fixed mortgage rate declined significantly in August since hitting a 2024 high of 7.44% to start May. The average rate on the benchmark 30-year mortgage dropped 26 basis points from 6.73% to 6.47% for the week ending Aug. 8, according to Freddie Mac. This was the sharpest weekly decline in about nine months. A basis point is one one-hundredth of a percentage point.
The key factors here are that home prices nationally fell last year to their lowest level in nearly three decades and 2024 has not been much of an improvement. In addition, mortgage rates have roughly doubled since the Federal Reserve began its campaign to curb inflation in early 2022. This increase in rates has pushed up the monthly cost to borrow for a home, blocking buyers who do not qualify for the additional monthly cost. Finally, the other elephant in the real estate room is the inventory of homes for sale. They have been slowly rising but they remain well below historical averages.
Some mortgage advisors say this is happening faster than expected and predict the central bank will approve one rate cut later this year. This should prompt a gradual easing of mortgage rates, but Freddie Mac still expects mortgage rates to remain above 6.5% through the end of the year and then decrease below 6.5% in 2025.
Fannie Mae predicts the rates will average 6.8% in the third quarter and 6.7% in the fourth quarter. They feel this downward trend will continue into the next year, averaging 6.5% in the first quarter of 2025.
The National Association of Realtors thinks rates will average 6.9% in the third quarter and 6.5% for the fourth quarter, going up to 6.7% by the end of the year. In addition, Chief Economist Lawrence Yun says the second half of 2024 will experience moderately lower mortgage rates, higher home sales and stabilizing home prices.
The Mortgage Bankers Association says rates will average 6.8% in the third quarter, going down to 6.6% in the fourth quarter and continue trending downward next year.
All the above is pretty much in agreement, but one of the most interesting opinions came from Melissa Cohn, regional vice president at William Raveis Mortgage, who was interviewed by a Forbes advisor. She hopes mortgage rates will hover in the 5% range next year, but says the presidential election could factor into it, something I have also heard from local brokers. Fiscal policies could impact inflation, which hopefully can stick at 2%, allowing for reduced interest rates for the next five years.
Nevertheless, she feels that when the rates come down, there will be another hot housing market where there are more buyers than sellers, jacking up prices since the problem of low inventory has not been resolved.
Everyone is still holding their breath for the next several months and waiting to see what the Federal Reserve is signaling for next year. Aug. 9 hit a low and a 6.5% rate may not be 3.5%, but it’s better than 7.5% and may just be enough to get everyone moving. Now on to the next storm.
