With the Fed Cutting Rates, What Is the Outlook for Future Mortgage Rates?

Last week marked the beginning of the end of one of the most rapid interest rate hiking cycles in history. There has been no historical precedent for the events that followed Covid-19 and the ensuing response, so there is no relative example for what may continue to happen going forward.

As one of the most interest rate sensitive sectors, the housing market has been highly affected. Higher mortgage rates have shuttered demand. Mortgage originations fell over 50% in 2022, then fell another 39% in 2023, and are trending at similar rates in 2024—roughly 40% below pre-Covid levels. The existing home market is similarly weak with existing home sales volumes 24% below pre-Covid levels[1].

Despite this weakness, home prices remain near historical highs as overall supply has also been curtailed with homeowners unwilling to part with their existing low-rate mortgages. And, despite the 10-year treasury settling in at 3.68%—forecasting lower continued inflation—market rates for mortgages remain stubbornly high at 6.08% according to Freddie MAC and an even higher 6.69% according to the BankRate benchmark[2].

Interest rates

Source: FRED, Federal Reserve Bank of St. Louis. Accessed 9/20/24. 4/2/1971 to 9/26/2024.