Mortgage Rate Predictions for Week of Dec. 9-15, 2024

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Mortgage rates have dropped slightly, with less than two weeks before the Federal Reserve's final policy meeting of the year. According to Bankrate data, the average rate on a 30-year fixed mortgage is kicking off the week at 6.79%, a decrease of 0.13% from last week. However, rates are still more than 0.5% higher than their September lows.

The mortgage market is responding to key economic data, namely Friday's Bureau of Labor Statistics job report showing slightly higher unemployment in November (4.2% compared to 4.1% in October). Meanwhile, wage and job growth were strong, with both figures outpacing investors' expectations.

Yet the data wasn't so robust that it caused bond yields and mortgage rates to surge. In fact, it had somewhat of the opposite effect. The modest uptick in unemployment pushed yields and rates lower.

Investors are betting on the Fed implementing another 0.25% rate cut at its Dec. 18 meeting. However, Wednesday's Consumer Price Index report, showing November's inflation data, will be the deciding factor, said Keith Gumbinger, vice president at mortgage site HSH.com.

The central bank already cut interest rates by 0.5% in September and 0.25% in November, and another rate cut may not move the needle much for mortgages. Though influenced by the Fed's actions, home loan rates are more closely tied to movement in the bond market.

Specifically, market watchers have concerns that the next President-elect Donald Trump's economic policies, which include tax cuts and tariffs, could increase deficits and stoke inflation. So even if the Fed votes to lower rates again, it could be the last cut we see for a while.

At a symposium on monetary policy sponsored by Bloomberg last Wednesday, Federal Reserve Bank of St. Louis President Alberto Musalem said, "The time may be approaching to consider slowing the pace of interest rate reductions, or pausing."

Unfortunately for prospective homebuyers, the expectation for a slower pace of rate cuts by the Fed next year is likely to keep upward pressure on mortgage rates. "To see mortgage rates drop below 6%, further economic weakness will be necessary," said Logan Mohtahsami, lead analyst at HousingWire.

Read more: 2025 Mortgage Rate Predictions

Why is labor data important for mortgage rates?

Inflation and labor data act as a barometer for the health of the economy and influence the Fed's decision to adjust its benchmark short-term interest rate up or down. The central bank has two main objectives: maintain maximum employment and contain inflation. While the Fed doesn't have direct control over the mortgage market, its monetary policy influences mortgage lenders and the general direction of borrowing rates.

Starting in early 2022, the central bank was laser-focused on taming inflation, implementing a series of aggressive rate hikes. With official inflation lower (it's been slowly cooling in the direction of the Fed's annual target range of 2%) and the labor market weaker, the Fed pivoted to cutting interest rates. With each cut, it's less expensive for banks to borrow money, allowing them to lower the rates offered on consumer loans, including mortgages.

While the Fed doesn't want to tip the economy into a recession by keeping rates high, it's also wary that cutting interest rates too quickly could allow inflation to creep back up. Higher inflation would also result in higher long-term bond yields and mortgage rates.

But mortgage rates tend to be volatile and preemptive. Rate movement depends not on what's happening now, but on what bond market investors and lenders believe will happen in the future based on economic data, messaging from the Fed and the geopolitical outlook.

Are mortgage rates high because of the election?

It's not a coincidence that mortgage rates have increased significantly since the results of the election were confirmed early last month.

In October, markets started defensively "pricing in" a Trump victory, which reversed many of the mortgage declines seen through the end of the summer.

"Right now, there's upward pressure on mortgage rates because of fears of rising debt and deficit levels and an acknowledgment that the incoming Trump administration could help grow the economy," said Ali Wolf, chief economist at Zonda, a home construction data company.

Fed Chair Powell has said it's too early to say how Trump's policies and a Republican-led Congress might alter the central bank's approach to interest rate adjustments.

Will mortgage rates drop by the end of the year?

Home loan rates are often quick to rise but slow to fall. For instance, it can take a few soft economic reports for mortgage rates to move lower, but just one strong piece of data to send them higher.

Although experts optimistically called for rates to fall close to 6% by the end of 2024, that's less of a possibility. Fannie Mae now expects average 30-year fixed mortgage rates to hold above 6.5% until early 2025.

Housing affordability won't change much in the short term. Treasury yields and mortgage rates will likely stay higher for longer, and prospective homebuyers will continue to be sidelined by a combination of high interest rates and steep home prices in 2025.

Here's a closer look at where some major housing authorities predict mortgage rates will go this year and next:

What else is happening in the housing market?

Today's unaffordable housing market results from high mortgage rates, a long-standing housing shortage, expensive home prices and a loss of purchasing power due to inflation.

🏠 Low housing inventory: A balanced housing market typically has five to six months of supply. Most markets today average around half that amount. Although we saw a surge in new construction in 2022, according to Zillow, we still have a shortage of around 4.5 million homes.

🏠 Elevated mortgage rates: At the start of 2022, mortgage rates were near historic lows of around 3%. As inflation surged and the Fed began hiking interest rates to tame it, mortgage rates roughly doubled within a year. In 2024, mortgage rates are still high, effectively pricing millions of prospective buyers out of the housing market. That's caused home sales to slow, even during typically busy home-buying months, like the spring and early summer.

🏠 Rate-lock effect: Since the majority of homeowners are locked into mortgage rates below 6%, with some as low as 2% and 3%, they're reluctant to sell their current homes since it would mean buying a new home with a significantly higher mortgage rate. Until mortgage rates fall below 6%, homeowners have little incentive to list their homes for sale, leaving a dearth of resale inventory.

🏠 High home prices: Although home buying demand has been limited in recent years, home prices remain high because of a lack of inventory. The median US home price was $434,568 in September, up 5.1% on an annual basis, according to Redfin.

🏠 Steep inflation: Inflation increases the cost of basic goods and services, reducing our purchasing power. It also impacts mortgage rates: When inflation is high, lenders typically set interest rates on consumer loans to compensate for the loss of purchasing power and ensure a profit.

Expert advice for homebuyers

It's never a good idea to rush into buying a home without knowing what you can afford, so establish a clear homebuying budget. Here's what experts recommend before purchasing a home:

💰 Build your credit score. Your credit score is one of the main factors lenders consider when determining whether you qualify for a mortgage and at what interest rate. Working toward a credit score of 740 or higher will help you qualify for a lower rate.

💰 Save for a bigger down payment. A larger down payment will allow you to take out a smaller mortgage and get a lower interest rate from your lender. If you can afford it, making a down payment of at least 20% will also eliminate the need for private mortgage insurance.

💰 Shop around for mortgage lenders. Comparing loan offers from multiple mortgage lenders can help you negotiate a better rate. Experts recommend you get at least two to three loan estimates from different lenders before making a decision.

💰 Consider the rent vs. buy equation. Choosing to rent or buy a home isn't just comparing monthly rent to a mortgage payment. Renting offers flexibility and lower upfront costs, but buying allows you to build wealth and have more control over your housing costs. The best choice depends on your finances, lifestyle and how long you plan to stay in one place.

💰 Consider mortgage points. One way to get a lower mortgage rate is to buy it down using mortgage points. One mortgage point equals a 0.25% decrease in your mortgage rate. Generally, each point will cost 1% of the total loan amount.