Mortgage Rate Predictions for Week of Sept. 9-15, 2024 (2024)

Mortgage rates have reached their lowest point in the last year and a half, and they’re expected to gradually get lower as the Federal Reserve incrementally cuts interest rates. In today’s housing market, “low” is relative.

The average rate on a 30-year fixed mortgage is slightly below 6.5%. Even if the Fed carries out its expected interest rate reduction at its September 17-18 meeting, we likely won’t see thatbenchmark rate become much more affordable anytime soon.

“My expectation is that we’ll not see mortgage rates fall below 6% this year,” said Danielle Hale, chief economist at Realtor.com, “but we’ll likely get a bit closer to that threshold than we are now as inflation relents and the job market steadies.”

Financial markets react to shifting expectations for the economy, so anticipation of the Fed’s upcoming move is already factored into the current mortgage market. A dramatic shift in mortgage rates next week would only happen if the Fed made a larger-than-expected rate cut or no rate cut at all, said Keith Gumbinger, vice president of mortgage site HSH.com.

Yet things could change in the coming months. “The right combination of weaker labor conditions, more quickly declining inflation and/or a more broad economic stumble (not to mention any number of global geopolitical or military issues) could push them [below 6%] easily enough,” said Gumbinger.

How a Fed rate cut will impact mortgage rates

Experts predict the central bank will probably ease the federal funds rate by 25 basis points, or 0.25%, next week.Although the Fed doesn’t have direct control over the mortgage market, its monetary policy influences mortgage lenders and the general direction of borrowing rates.

Mortgage rates fluctuate daily in response to a range of factors. Although one single data point is never decisive, inflation and labor data shed light on the health of the economy and influence the Fed’s decision to adjust interest rates up or down.

Since early 2022, as the Fed became laser-focused on battling inflation, it was clear that higher unemployment could be a necessary by-product of an aggressive rate-hiking cycle. With inflation now close to the central bank’s annual target of 2%, the Fed should be able to pivot to cutting rates to avoid a job-loss recession.

Last Friday’s report on jobs from the Bureau of Labor Statistics showed that unemployment ticked down slightly to 4.2% in August. Although the jobless rate is still considered low by historical standards, it’s up from last year at this time when it was 3.8%.

“We do not seek or welcome further cooling in labor market conditions,” Fed Chair Jerome Powell said during a speech in late August. Economists took that as a sign that the Fed wants to avoid a significant hiring slowdown or a steep increase in jobless numbers.

Although a far weaker labor market could lead to a drop in mortgage rates, it would raise serious economic concerns, which could undermine confidence among both homebuyers and sellers, Hale said. “The best outcome for home shoppers is continued gradual moderation [in unemployment figures],” said Hale.

Bad economic news is usually good for mortgage rates. When unemployment increases, yields on the 10-year Treasury (a key benchmark for average 30-year fixed mortgage rates) typically fall, and rates on home loans move in tandem.

How many times will the Fed cut interest rates this year?

A September rate cut is mostly in the bag, experts are split on whether the central bank will make additional interest rate reductions this year. After this month, the Fed hastwo remaining policy meetingsin November and December.

If the unemployment rate continues to increase, the Fed may be forced to slash rates at each of its remaining meetings. Reducing rates more frequently and by larger amounts could result in lower mortgage rates, said Logan Mohtashami, lead analyst at HousingWire.

The opposite is true if we get a few positive labor market readings. The central bank may decide that the economy can withstand a few more months of high interest rates. In that case, it will take longer for prospective homebuyers to see significantly lower mortgage rates.

Other factors affecting the housing market right now

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.

Will mortgage rates ever be 3% again?

A few years ago, homebuyers could take out home loans with rates between 2% and 3%. Mortgage rates will fall over the next year, but they won’t reach those levels. Housing market experts say it would take a significant economic crisis for mortgage rates to drop below 3%.

Read more: You Won’t Get a 2% Mortgage Again. How to Adjust to a Different Housing Market

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. It’s also worth noting that a dip in mortgage rates will likely increase homebuying interest overall, which may drive home prices up and keep the market unaffordable for a while.

“As mortgage rates come down, the housing market could get more competitive for home shoppers,” said Hale.

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.