Mortgage rate declines for the 9th consecutive week amid 2023 home affordability crisis

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By Carina

Amid expectations of Federal Reserve interest rate cuts, U.S. mortgage rates have experienced a ninth consecutive weekly drop, providing relief after peaking at 7.79 percent in late October. 

The 30-year fixed-rate mortgage rate averaged 6.61 percent for the week ending Dec. 28, according to Freddie Mac.

Mortgage calculator. House, noney and document. — Stock Photo, Image
Credit: DepositPhotos

Economic impact: Dampening effect on housing affordability

The elevated mortgage rates throughout 2023 have adversely affected the U.S. housing market. 

Redfin’s report indicates that 2023 witnessed one of the least affordable home-buying years on record, with only 15.5 percent of homes deemed affordable for the typical U.S. household. 

This decline, attributed to elevated mortgage rates, signals a challenging period for potential homebuyers.

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Goldman Sachs outlook and affordability challenges

Goldman Sachs predicts mortgage rates to stay above 7 percent in 2024, coupled with a modest climb of 1.9 percent in U.S. home prices. 

The report underscores the challenges homeowners face looking to sell and buy new homes, with the “lock-in” effect depressing existing home sales. 

The Goldman Sachs Housing Affordability Index hit a “record low” in 2023, with gradual improvement expected over the next three years.

Mortgage rates soar, aligns with Federal Reserve’s interest rate hikes

Despite the recent one percentage point drop over nine weeks, the current mortgage rate of 6.61 percent remains significantly higher than the 2021 rate of 3.11 percent. 

Real estate concept. House on calculator. Mortgage. — Stock Photo, Image
Credit: DepositPhotos

The surge in mortgage rates aligns with the Federal Reserve’s interest rate hikes, reflecting a shift from around 0.7 percent in late December 2021 to the current 5.33 percent.

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Future projections: Expectations and industry insights

Anticipation of Federal Reserve rate cuts has triggered the recent decline in mortgage rates. Industry experts project a further easing in 2024, but expectations of rates dipping to 3 percent are not widespread. 

The Mortgage Bankers Association (MBA) predicts rates to be “closer to 6 percent by the end of 2024.” 

Senior mortgage loan officer Aaron Gordon suggests rates will remain higher in the first half 2024 before easing down in the latter half.

Navigating the mortgage landscape in 2024

The evolving trajectory of U.S. mortgage rates presents a dynamic landscape for homeowners and potential buyers. 

The recent declines offer some respite, but challenges in housing affordability persist. 

As the Federal Reserve’s actions continue to influence mortgage rates, the second half of 2024 is anticipated to bring potential relief for homebuyers, contingent on economic indicators and Fed decisions.

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