Homebuyers got an early holiday gift at the end of 2023 as mortgage rates reversed course, dropping more than a full percentage point and settling below 7% by mid-December. Before this drop, rates had hovered above 7% since August after peaking at around 8.00% in October.
A 30-year, fixed-rate loan at roughly 6.75% as of this writing is a welcome relief for homebuyers either in the market or waiting on the sidelines over the last few months. With lower rates, prospects will have greater buying power in the spring market than in recent months. A 6.75% rate on a $500,000 loan, for example, translates to about $350 per month in principal and interest payment savings compared to a 7.75 % loan.
Following the pandemic-driven homebuying and refinancing boom, 85% of US homeowners have mortgage rates below 5%. For many of these owners, even if they wanted to sell over the last 12 months, many were hesitant to take on a 7-8% mortgage – and that’s had a cooling effect on inventory. With rates declining, a sub-7% mortgage may be easier to swallow, and this could free up much needed inventory in 2024.
Another positive for the market is the new conforming loan limits that came into effect for 2024. The limits increased to $766,550 for standard loans and to $498,257 for FHA loans. For high-cost markets such as New York, California and Hawaii (but not Chicago), the limit increased to $1,149,825. These updated limits allow buyers to borrow more under conventional loan terms, avoiding the higher interest rates typically associated with jumbo loans.
“The drop in mortgage rates is hugely positive for homebuyers in 2024 after a challenging year in 2023,” explains Peter Boomer, president of Proper Rate, “It’s still a seller’s market, though, so homebuyers still need to do their homework.”
For homeowners who did take on a new mortgage in 2023, the new year will likely offer several opportunities to refinance into a lower rate and therefore a lower mortgage payment. Again, cutting a percentage point off your existing loan could save you hundreds or more each month.
“While experts predict rates will continue to decline, there’s no specific timeline and no guarantees,” says Boomer. “Eighteen months ago, people predicted rates would fall back into the 5% range by early 2023. We know how that worked out. If you find a home you like and can afford, go for it. You can always refinance if the experts get it right this time.”
