The current mortgage interest rates forecast indicates that rates will remain relatively high throughout December. After reaching their highest level since 2001 over the summer, mortgage rates have stayed above 7% for ten consecutive weeks. Despite hopes for a turnaround, experts predict that rates and the housing market will not significantly improve before the year’s end. It is anticipated that rates closer to 6% will only be seen towards the end of 2024.

Progress on Inflation and its Impact

Progress on inflation suggests the possibility of a “soft landing” as we move away from the dangerously high levels witnessed during the summer of 2022. If inflation continues to decline without negatively impacting the labour market or the broader economy, rates will likely decrease, boosting the housing market. In November, mortgage rates steadily declined, reaching 7.22% during the final week, according to the Freddie Mac Primary Mortgage Market Survey® conducted on November 30, 2023.

Federal Reserve’s Role

Hints from several Federal Reserve members about potentially gaining control over inflation have prompted investors to anticipate an end to the Fed’s cycle of rate hikes. The final week of November saw a notable decrease in the two-year Treasury yield as enthusiastic investors drove up consumer prices. However, although market watchers foresee an end to the current rate-hike cycle, the Fed is not expected to begin cutting rates until the latter half of 2024. Any new data indicating further rate hikes shortly will likely result in higher mortgage rates.

Gradual Reduction in Rates

According to Jacob Channel, LendingTree’s senior economist, even when the Fed eventually begins cutting rates, it is unlikely to result in a dramatic reduction. Instead, we can expect to see gradual 25-basis-point cuts here and there. This could potentially bring rates closer to 6% in the upcoming year. However, Channel cautions that rates will likely remain high compared to the record lows experienced during the pandemic when average 30-year mortgage rates were around 2.65%. We will unlikely witness such historically low rates again in our lifetimes.

December’s Home Affordability Outlook

Unfortunately, home affordability is not expected to improve significantly in December for winter home shoppers. The high mortgage rates and low housing supply make it extremely difficult for most potential homebuyers to afford houses in the current market conditions. We should anticipate low mortgage demand until rates and home prices start to decrease. Compared to last year, home sales remain low due to the persistently high rates and ongoing lack of housing inventory.

Conclusion

In conclusion, the forecast of current mortgage interest rates indicates that they will remain relatively high throughout December. Although progress on inflation may lead to a decline in rates and help the housing market gain momentum, any rate cuts from the Federal Reserve are not expected until the second half of 2024. Even then, any reductions are likely to be gradual. Therefore, it is unlikely that we will see a significant improvement in home affordability in December, as high rates and low supply continue to hinder potential homebuyers.

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