Impact of Rising Mortgage Rates on the Housing Market in 2024

The housing market is once again feeling the impact of rising mortgage rates, as the average rate on the popular 30-year fixed mortgage crossed over 7% on Monday, reaching 7.04%, according to Mortgage News Daily. This marks the first time since December that rates have reached this level. The sharp increase in rates was triggered by the surprisingly strong January employment report and further elevated by a monthly manufacturing report. These recent developments have caused mortgage rates to fluctuate significantly since the summer.

During October of the previous year, mortgage rates briefly soared to a 20-year high of 8%. However, rates then experienced a sharp decline due to indications that the Federal Reserve would halt its interest rate increases. Although mortgage rates do not directly follow the Fed’s actions, they do correspond loosely with the yield on the 10-year Treasury, which is influenced by the central bank’s perception of the economy.

Matthew Graham, Chief Operating Officer at Mortgage News Daily, explains, “The rapid increase in rates over the past two days is actually not too surprising given the fact that the market was widely seen as overly optimistic on the Fed rate cut outlook. The Fed has repeatedly pointed to economic data having the final say in that outlook, and data has been shockingly unfriendly to rates as of Friday morning’s jobs report.”

While mortgage rates were falling in the past two months, there was a noticeable resurgence of buyers in the housing market. This was accompanied by a slight increase in the number of homes available for sale. However, despite this uptick in inventory, the total supply remains historically low, resulting in heightened competition among buyers. Additionally, the combination of soaring home prices and limited supply made 2023 the worst year for home sales since 1995. Many industry experts are optimistic that 2024 will bring improvements.

Chief Economist at the Mortgage Bankers Association, Michael Fratantoni, states, “The strong job market is good news for the spring buying season as higher household incomes are a necessary component, but it also means that mortgage rates are not likely to drop much further at this point.”

As the crucial spring housing market approaches, the impact of mortgage rates becomes increasingly significant, especially given the high and steadily rising home prices. In December 2022, the median price of an existing home sold reached $382,600, representing a year-over-year increase of 4.4%. This marked the sixth consecutive month of price gains. Moreover, the median price for the full year was a record high of $389,800.

With housing prices reaching such heights, even minor fluctuations in mortgage rates can disproportionately affect monthly payments, ultimately influencing the affordability of homes. A mere half percentage point swing in rates can result in buyers either saving or paying over $200 more per month for a median-priced home.

“The future of rates in 2024 is all about ifs and thens,” suggests Matthew Graham of Mortgage News Daily, highlighting the unpredictability of mortgage rate movements. As the year unfolds, the housing market’s direction will be shaped by a multitude of factors, including economic data, the Fed’s interest rate policies, and global events. It remains essential for homebuyers and industry professionals to stay vigilant and prepared for potential changes in mortgage rates throughout the year.

The resurgence of high mortgage rates poses challenges for the housing market in 2024. Buyers must contend with increased affordability concerns due to rising home prices and the potential for further rate increases. While the future remains uncertain, proactive monitoring of economic trends and mortgage rate fluctuations will enable stakeholders to make informed decisions in navigating this dynamic and ever-changing housing landscape.

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