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Where will mortgage rates go this week? August 19-25, 2024

Amid extreme market volatility this month, the housing market got a boost as mortgage rates dropped dramatically. The average 30-year mortgage rate fell from around 7% to 6.5% in less than a week, reaching its lowest level in over a year.

Homebuyers and homeowners benefited from lower interest rates, driving demand for mortgages to its highest level since January 2023. Mortgage applications rose 16.8% in the week ending August 9, according to the Mortgage Bankers Association, with the increase primarily due to refinance activity.

The July consumer price index showed annual inflation falling to 2.9%, below 3% for the first time in over three years. With a weaker jobs report, the economy appears to have slowed enough for the Federal Reserve to cut interest rates in September.

Home loan rates will fall when the Fed starts cutting rates, benefiting both buyers and sellers, says Allison Kaminaga, an economist at Bryant University. However, the decline will be gradual and take place over several months or even years.

Will mortgage rates fall in 2024?

The average interest rate on a 30-year fixed-rate mortgage is currently 6.58 percent, according to data from CNET's sister site, Bankrate. Although rates rose slightly this week, they are still more than half a percent lower than the same period last year.

Mortgage rates stabilized after the dust settled from a brief stock market plunge earlier this month. Before the crash, most economists and housing market experts expected mortgage rates to fall by half a percentage point by the end of 2024.

If inflation and jobs data continue to point to a weakening economy, average mortgage rates could be close to 6% by year's end, said Melissa Cohn, regional vice president at William Raveis Mortgage and a member of CNET Money's Expert Review Board.

Will the Fed cut interest rates in September?

The Fed has three more meetings in September, November and December in 2024. Most economists expect the Fed to likely cut interest rates by 0.25% to a target range of 5.0% to 5.25% at its meeting on September 17-18.

In order to cut rates, the Fed wants to see continued progress on inflation and further weakening of the labor market (i.e. higher unemployment). Recent data has met both criteria. In fact, the Fed is now under pressure from some market observers and investors to make an even bigger cut in September, by half a percent instead of a quarter of a percent, and possibly a second cut later in the year.

Other factors currently influencing the real estate market

Today's unaffordable housing market is due to high mortgage rates, a long-standing housing shortage, high real estate prices, and a loss of purchasing power due to inflation.

A balanced housing market typically has five to six months of supply. Most markets today average about half that amount. Although we've seen an increase in new construction in 2022, according to Zillow, we're still about 4.5 million homes short.

In early 2022, mortgage rates were near historic lows of around 3%. As inflation rose and the Fed began raising rates to contain it, mortgage rates roughly doubled within a year. In 2024, mortgage rates are still high, effectively keeping millions of potential buyers out of the real estate market. That's led to a decline in home saleseven during the normally busy home buying months, such as spring and early summer.

Since the majority of homeowners tied to mortgage interest rates below 6%, in some cases as low as 2% or 3%, they are hesitant to sell their current homes because it would mean buying a new home with a much higher mortgage rate. Until mortgage rates fall below 6%, homeowners have little incentive to put their homes up for sale, leading to a shortage of resale listings.

Although demand for homes has been limited in recent years, home prices remain high due to a lack of supply. The median home price in the U.S. was 419,300 USD in May, representing a 5.8% year-over-year increase, according to the National Association of Realtors.

High real estate prices make it difficult for potential buyers to afford a down payment and the cost of a large mortgage. According to a current study According to CNET's sister site Bankrate, potential buyers need an annual income of more than 100,000 US dollars to be able to afford a house at the average price.

Inflation increases the cost of basic goods and services and reduces our purchasing power. It also affects mortgage interest rates: when inflation is high, lenders tend to set interest rates on consumer loans to offset the loss of purchasing power and make a profit.

Even if the The inflation rate was Although prices have cooled over the past year from their peak of 9.1% a few years ago, price growth is still substantial. The latest inflation data shows an annual inflation rate of 3%, which is still above the Fed's target of 2%.

Will mortgage rates ever be 3% again?

A few years ago, homebuyers could still take out mortgages at interest rates between two and three percent. Mortgage rates will fall over the next year, but they will not reach these levels. Experts in the housing market say it would take a significant economic crisis to bring mortgage rates below three percent.

Read more: You'll never get a 2% mortgage again. How to adapt to a different real estate market

There is no single “average” mortgage rate. They vary considerably depending on how each source compiles its data, whether it's a lender or a government-backed agency like Fannie Mae. You're likely to see a difference of several percentage points between two sources.

Competent advice for property buyers

It's never a good idea to rush into a big purchase like buying a home without knowing what you can afford, especially with current interest rates. In addition to having a clear home-buying budget, experts recommend the following:

Build your creditworthiness. Your credit score is one of the main factors lenders consider when deciding whether you qualify for a mortgage and at what interest rate. If you work toward a credit score of 740 or higher, you may qualify for a lower interest rate.

Save for a larger down payment. A larger down payment allows you to take out a smaller mortgage and get a lower interest rate from your lender. If you can afford it, a down payment of at least 20% also eliminates the need for private mortgage insurance.

Compare mortgage lenders. Comparing loan offers from multiple mortgage lenders can help you negotiate a better interest rate. Experts recommend that you get at least two to three loan offers from different lenders before making a decision.

Consider the Rent vs. Buy equation. Deciding whether to rent or buy a home isn't just about comparing monthly rent to a mortgage payment. Renting offers flexibility and lower upfront costs, but buying allows you to build wealth and have more control over your housing costs. The best choice depends on your finances, lifestyle and how long you plan to stay in one place.

Consider mortgage points. One way to get a lower mortgage rate is to lower it using mortgage points. One mortgage point is equal to a 0.25% reduction in your mortgage rate. Generally, each point costs 1% of the total loan amount.

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