Mortgage rates are dropping. Here’s what to expect in 2024 if you want to buy a home, experts say…

In the wake of a year characterized by historically high interest rates and soaring home prices, 2024 is poised to offer a lucrative opportunity for prospective homeowners.

December witnessed a significant shift as average mortgage rates dropped below 7%, a noteworthy change since August and following the October peak of 8%, which propelled housing costs to their highest levels since 2000.

Freddie Mac’s latest report reveals a decline in the average rate on a 30-year fixed-rate mortgage from 7.03% to 6.95% in the past week, compared to 6.31% a year ago. Simultaneously, the 15-year fixed-rate mortgage experienced a slight increase from 6.29% to 6.38%.

Jessica Lautz, Deputy Chief and Vice President of Research at the National Association of Realtors, underscores the financial benefits for buyers. She emphasizes the potential for mortgage and interest rates to gradually decline, providing individuals with increased financial flexibility for their mortgage payments. Additionally, Nicole Bachaud, a senior economist at Zillow, notes a growing inventory as new listings make a comeback.

Lower interest rates are anticipated to be a boon for homebuilders, easing their access to financing for construction. Lautz envisions this leading to a surge in the housing supply, creating a wealth of options for potential buyers.

Despite the positive trends, concerns about affordability linger. High housing costs have caused a significant delay in homeownership for many, resulting in an aging demographic among renters and first-time homeowners. A Zumper report reveals that record-high interest rates deterred over 69% of renters from pursuing homeownership in 2023.

The rental market is undergoing transformations, with a shift toward older renters and a potential uptick in demand for rental housing in urban areas. Experts anticipate increased activity in the rental market as young adults strive for independence or adapt to changing workplace requirements.

While affordability is expected to marginally improve in the coming months, it remains a significant challenge for many households. Prices for single-family rentals are rising faster than those for multifamily apartment buildings, signaling sustained demand for affordable housing options.

Despite these challenges, the desire for homeownership remains robust, as experts underscore the enduring appeal of the American Dream. Homeownership is highlighted as a key pathway to building wealth, with homeowners typically enjoying a significantly higher net worth compared to renters.

Looking ahead, experts predict a shift in the landscape of homeownership in the coming decades. Younger generations continue to prioritize saving for down payments, signaling persistent demand for homeownership. For serious first-time homebuyers, the early months of 2024 present a prime opportunity to enter the market, capitalizing on lower rates and potentially encountering less competition.

The National Association of Realtors forecasts an average mortgage interest rate of 6.3% and estimates a 0.9% increase in home prices for 2024. Lautz advises potential buyers to carefully weigh the trade-offs and consider seizing the opportunity presented by lower rates and potential decreased competition. Refinancing is also presented as a viable option in the current market conditions, emphasizing the urgency for prospective homeowners to act swiftly in the coming year.

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