Where forecasters expect mortgage rates to go in 2024. Can we trust them?

Economic forecasting has never been an easy task, and it becomes all the more challenging when dealing with unprecedented economic events, such as COVID-19 lockdowns, and unprecedented levels of government interventions (i.e. stimulus/ultra-low interest rates).

For the second year in a row, mortgage rate forecasters at large have missed—big time—raising the question: can we trust mortgage rate predictions at all right now?

In late 2021, the Mortgage Bankers Association (MBA) was forecasting that mortgage rates would rise to 4.0% by Q4 2022, while Fannie Mae had a different estimate, suggesting mortgage rates would rise to 3.3% by Q4 2022. The outcome, however, defied these expectations. The average 30-year fixed mortgage rate averaged 6.7% in Q4 2022.

Fast forward to 2023, and history seemed to repeat itself. Entering the year, the Mortgage Bankers Association predicted that the average 30-year fixed mortgage rate would fall back to 5.2% by Q4 2023, and Fannie Mae predicted mortgage rates would average 6.1% in Q4 2023. As of this week, the average 30-year fixed mortgage rate tracked by Freddie Mac sits at 7.79%.

What are big name forecasters thinking for 2024?

Fannie Mae expects the 30-year fixed mortgage rate will average 6.7% in Q4 2024. The Mortgage Bankers Association predicts 6.1% in Q4 2024, and Goldman Sachs expects the 30-year fixed mortgage rate to average 6.8% in Q4 2024.

These latest 2024 mortgage rate forecasts, which were all released this month, represent something of a mortgage rate capitulation.

Back in May, Fannie Mae was predicting that the 30-year fixed mortgage rate would average 5.4% in Q4 2024 (now they’re forecasting 6.7%), while the Mortgage Bankers Association was predicting 4.8% for Q4 2024 (now they’re forecasting 6.1%).

In other words, forecasters are coming to terms that the resilient economy, and determined Federal Reserve, could see financial markets keep yields and mortgage rates “higher for longer.”

A game changer, of course, would be if the Federal Reserve shifted from tightening mode and into easing mode sooner than expected, or if spiked rates ultimately push the U.S. economy into a recession.

“In many ways, the housing market experienced four years of business in a two-year period between mid-2020 and mid-2022. With ongoing affordability constraints and rising mortgage rates, much of that activity has essentially been given back. We expect the higher mortgage rate environment to continue to dampen housing activity and further complicate housing affordability into 2024” writes Fannie Mae chief economist Doug Duncan.

Tomorrow, readers who’ve upgraded to ResiClub Pro will get the first-ever Lance Lambert House Price Tracker. Then on Sunday, ResiClub Pro subscribers will get to read my interview with Sean Dobson, the CEO of Amherst, an institutional homebuyer that owns around 44,000 single-family homes.