On Friday, the average 30-year fixed mortgage rate jumped to 7.19%. Over the past few months, mortgage rates have climbed back up. Financial markets, which have reacted to stronger-than-expected labor market data, are now factoring in higher probabilities of the Fed maintaining higher interest rates for a prolonged period.
This 7.19% mortgage rate is the second highest recorded by Mortgage News Daily since early November. It was surpassed only by the 7.22% rate reached in July.
This surge in mortgage rates signifies another decline in U.S. housing affordability. For instance, a borrower who secured a $500,000 mortgage at a fixed rate of 5.99% in early February 2023 would have had a monthly payment of $2,995 for principal and interest. However, at the 7.19% rate (which was the average on Friday), the same borrower would face a monthly payment of $3,391 for a loan of the same size.
Looking ahead, economists emphasize three factors that can improve housing affordability: increasing incomes, decreasing home prices, and lowering mortgage rates. Among these factors, mortgage rates can exert the most substantial influence in the short term. This is due to the fact that home prices tend to be sticky, and income growth has limitations even in a robust labor market.
Where are mortgage rates heading from here? To get some clues, Fortune tracked down mortgage rate forecasts from nine leading research firms. However, it's important to acknowledge that predicting future mortgage rates is a challenging task, and recent history has shown that mortgage rate forecasters have struggled.
The Mortgage Bankers Association: The D.C.-based trade group projects that the 30-year fixed mortgage rate will average 5.9% in Q4 2023. Beyond this year, the group expects mortgage rates to slide to 4.9% by Q4 2024.
Morningstar: Economists at Morningstar project that the average 30-year fixed mortgage rate will average 6.25% in 2023, 5.0% in 2024, and 4.0% in 2025.
Goldman Sachs: The investment bank projects that the 30-year fixed mortgage rate will end 2023 at 6.4%. In 2024, Goldman Sachs expects the 30-year fixed mortgage rate will average 5.9%.
The National Association of Realtors: Economists at NAR forecast that the 30-year fixed mortgage rate will slide to 6.4% before the end of 2023, and then to 6.0% in 2024.
Morgan Stanley: The Agency MBS strategists at Morgan Stanley project that the 30-year fixed mortgage rate will start 2024 at 6.0%.
Moody's Analytics: The financial intelligence arm of Moody's still projects that the 30-year fixed mortgage rate will average 6.5% through most of 2023. Moody's Analytics chief economist Mark Zandi tells Fortune that he expects that to slide to 6.0% by the end of 2024, and then hit 5.5% in 2025.
Realtor.com: Economists at the home listing site believe the 30-year fixed mortgage rate will start 2024 at 6.1%.
Fannie Mae: Economists at Fannie Mae forecast that the 30-year fixed mortgage rate will average 6.6% in Q4 2023. Then Fannie Mae expects mortgage rates to grind down to an average of 5.9% in Q4 2024. For the calendar year, Fannie Mae expects mortgage rates to average 6.1% in 2024.
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