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Mortgage Rates Dip Below 7% Amid Easing Inflation

Bob Haegele Updated: December 24, 2023 • 3 min read
realtor and homebuyer shaking hands on a new home purchase

Key Points:

  • Freddie Mac reports 30-year fixed-rate mortgage below 7% for the first time since August, with potential for further decline in 2024.

  • The Fed's rate increases show effectiveness as inflation decreases, possibly leading to a more favorable housing market.

  • Improved labor market conditions and predictions of falling mortgage rates in 2024, amidst ongoing high rates and modest mortgage application rates.

Last week, Freddie Mac announced that rates for the 30-year fixed-rate mortgage (FRM) had dropped below 7% for the first time since August.

On the date of the announcement, the rate was 6.95%. Just one week earlier, the 30-year FRM rate was 7.03%. Similarly, the Mortgage Bankers Association (MBA) reported a 30-year FRM rate of 6.83% on December 20.

While mortgage rates are much higher than their 2021 levels, some experts believe rates could continue to fall in 2024.

Inflation Continues to Slow

The Federal Reserve aims to keep inflation at 2%. With inflation soaring due to the coronavirus, the Fed began raising rates from near zero to the current 5.25%-5.50% range.

The appears the Fed’s actions are beginning to have the desired effect. For instance, inflation stood at 3.1% in November 2023. Sam Khater, Freddie Mac’s chief economist, says easing inflation is a positive sign for the housing market.

“Given inflation continues to decelerate and the Federal Reserve Board’s current expectations that they will lower the federal funds' target rate next year, we likely will see a gradual thawing of the housing market in the new year,” Khater said.

The Fed didn’t increase rates on December 13, and Fed chair Jerome Powell said rate hikes were “not the base case anymore.” While Powell has generally been measured in declaring the battle over inflation won, he appeared surprisingly optimistic in the latest press conference. "It's so far, so good," Powell said.

[Rate hikes are] not the base case anymore.

Mortgage Applications Decline

On December 20, the Mortgage Bankers Association also announced a decline in the Market Composite Index. This index measures the volume of new mortgage applications.

According to the MBA, the Market Composite Index decreased 1.5% on a seasonally adjusted basis from one week earlier. The index decreased 3% from one week earlier on an unadjusted basis.

Mike Fratantoni, MBA’s SVP and chief economist, says the news from the Fed is a good sign for mortgage applicants. "With the positive news about the drop in inflation, and the FOMC projections proclaiming a pivot towards rate cuts, the 30-year fixed mortgage rate reached its lowest level since June 2023, declining to 6.83 percent.”

Despite the positive news about lower rates, buyers haven’t rushed to apply for new mortgages. “At least as of last week, borrowers' response to this rate move was rather tepid,” Fratantoni said. However, refinancing ticked up slightly in the latest report to 39.7% from 39.2% in the previous week.

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Labor Market Rebalancing

During the coronavirus pandemic, labor shortages ran rampant, with many sectors unable to find enough workers. However, it seems that is beginning to shift as we begin to see a better balance between the supply and demand of workers.

In Jerome Powell’s December 13 press conference, Powell said things are beginning to improve. “The labor market remains tight, but supply and demand conditions continue to come into better balance,” Powell said. “Strong job creation has been accompanied by an increase in the supply of workers,” Powell added.

However, Powell explained that while things are improving, there still aren’t enough workers to fill open positions. “Although the jobs-to-workers gap has narrowed, labor demand still exceeds the supply of available workers,” Powell said.

According to Powell, the employment rate remains low, at 3.7%. With more jobs added, mortgage rates could continue to fall in 2024.

News & Updates Related Articles

Lawrence Yun, chief economist at the National Association of Realtors (NAR), echoed that sentiment in NAR’s 2024 Real Estate Forecast Summit.

“So the forecast is that I believe the average mortgage rate next year will be in the mid-6% range,” Yun said. Yun believes the average rate in 2024 will be about 6.3%.

He says this will occur due to falling rents, high interest rates for community banks, and a return to normal in the spread between government bonds and mortgage rates.

The Bottom Line

Homebuyers have faced mortgage rates in excess of 7% in the latter half of 2023, making homes unaffordable for many. However, mortgage rates dipped below 7% in December, and some experts believe mortgage rates will continue to fall in 2024.

However, mortgage rates remain high for the time being. You can easily get the help you need to find the lowest rate available on a new home purchase or refinancing. With mortgage rates over 6%, finding the best rate could save you thousands. Before buying your first (or next) home, use the right resources to help you secure the best rate.

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Written by Bob Haegele

Bob Haegele is a freelance personal finance writer who writes about topics like personal finance, investing, banking, and credit cards. His struggle with student loans inspired him to help others get out of debt and start building wealth. He started freelancing full-time in 2020, around the start of the COVID-19 pandemic. Since then, he has written for a variety of nationally recognized financial websites and blogs.