More People Think Mortgage Rates Are Going to Fall — How Likely Is It?

Consumer perception of mortgage rates

Consumers are getting increasingly optimistic about mortgage rates. In fact, according to the most recent Home Purchase Sentiment Index from mortgage purchaser Fannie Mae, nearly a third of consumers surveyed expect mortgage rates to fall in the next 12 months — a record-high for the index.

It’s also a big month-over-month improvement. In November, just 17% of survey respondents thought mortgage rates would go down in the next year, and a whopping 47% said they’d actually increase.

As Mark Palim, vice president and deputy chief economist at Fannie Mae, put it, “Mortgage rate optimism increased dramatically this month.”

What’s behind this big shift, and do industry experts agree with these improved consumer sentiments? Here’s what you should know.

The case for lower mortgage rates

A big portion of the improved optimism behind mortgage rates is likely borne from recent rate trends. Since peaking in October 2023, the average rate on 30-year mortgages has dropped steadily from almost 8% to the mid-6% range it sits at today.

As you can see in the chart below, consumer sentiment around mortgage rates has gradually improved in that time period.

Recent Federal Reserve moves — and commentary — are surely playing a role, too. The central bank has held off on rate hikes at its last three meetings and, in December, even indicated three rate cuts could be coming in 2024.

When those rate cuts begin, mortgage rates are likely to follow suit. According to the CME Group FedWatch Tool, rate cuts could begin as soon as the Fed’s March meeting.

What the industry says

If you look at rate forecasts across the industry, most pros side with consumers here, projecting decreases — mild ones, at least — across the bulk of 2024.

The Mortgage Bankers Association predicts the average 30-year mortgage rate will reach 6.1% by the end of the year. Other predictions include Fannie Mae (6.5%), Redfin (6.6%), and Realtor.com (6.5%).

If these predictions ring true, it could spell easing housing conditions for both buyers and sellers in 2024. Still, Palim says, it likely won’t mean a stark about-face — at least when it comes to affordability.

“Even if rates fall further, we continue to believe that affordability will be tempered in part by elevated home prices, especially for first-time homebuyers,” Palim says. “We expect the pace of home sales improvement to be modest in 2024.”