Since the summer, mortgage rates have been on a turbulent journey, briefly hitting a 20-year high of 8% in October. Following this, rates experienced a sharp decline as investors became increasingly convinced that the Federal Reserve would conclude its current phase of interest rate hikes. Although mortgage rates are not directly tied to the Fed, they tend to align with the yield on the 10-year Treasury, which is heavily influenced by the Fed’s perception of the economy.”The rapid rate surge over the past two days is not particularly surprising given that the market had been widely viewed as overly optimistic about the Fed’s rate cut outlook. The Fed has consistently emphasized that economic data has the final say in this outlook, and the data has been remarkably unfavorable for rates following Friday morning’s jobs report,” stated Matthew Graham, chief operating officer at Mortgage News Daily.While mortgage rates declined over the last two months, there was an apparent resurgence of buyers in the market. This corresponded with a slight increase in the number of homes for sale. Despite this, total inventory remains historically low, resulting in intense competition and sustained high home prices. The combination of high prices and low supply made 2023 the worst year for home sales since 1995. However, most experts anticipate 2024 to be an improvement.”The strong job market is encouraging news for the spring buying season, as higher household incomes are a crucial factor. However, this also implies that mortgage rates are unlikely to decrease significantly at this point,” explained Michael Fratantoni, chief economist at the Mortgage Bankers Association.While mortgage applications for home purchases had been steadily increasing, they declined in the past few weeks as mortgage rates rose. As the crucial spring housing market approaches, rates are more critical than ever, given the high and steadily increasing home prices. The median price of an existing home sold in December (the most recent data available) was $382,600, marking a 4.4% increase from December 2022. This represented the sixth consecutive month of year-over-year price gains, with the full-year median price reaching a record high of $389,800.Given the elevated prices, even minor rate fluctuations have a considerable impact on monthly payments, ultimately affecting affordability. A mere half percentage point shift could cost or save a buyer over $200 per month on a median-priced home. So, what’s next?”The outlook for 2024 rates is contingent on a series of ‘ifs’ and ‘thens’,” Graham remarked. “If we continue to see data similar to last Friday’s jobs report, rates will likely struggle to dip below 7%. However, inflation is even more crucial than the labor market. If inflation remains lower than expected, it could alter the forecast.”
