In 2023, higher mortgage rates cooled the real estate market in Washington and elsewhere across the country. But home loan rates have been trending downward lately, and some economists expect this to continue into 2024.
According to one recent forecast, lower mortgage rates could increase Washington home sales in 2024. Lower borrowing costs could increase buyers’ demand and bring more homes on the market.
Both of those things would lead to an increase in sales activity.
Forecasters Predict Lower Mortgage Rates in 2024
The average rate for a 30-year fixed mortgage loan has more than doubled over the past two years. This trend has had a cooling effect on the U.S. housing market.
A high mortgage interest rate makes mortgages much more expensive. Even if home prices don’t increase, rising rates can make mortgages unaffordable for homebuyers. But if the rate of increase in mortgage rates eases, or even flattens or dips, this could open the doors for buyers who otherwise wouldn’t be able to afford a mortgage.
Here in the state of Washington, we’ve seen a general decline in home sales during that same timeframe. This is common when mortgage rates rise significantly in a relatively short time, as they’ve done in recent months.
From a home buyer’s perspective, the silver lining is that rates have been trending downward for the past few weeks. Some analysts believe that the peak or “crest” for mortgage rates has passed, which means we could see lower mortgage rates in WA State over the coming months.
Here’s a summary of recent mortgage rate trends in Washington and nationwide:
- Two years ago, 30-year mortgage rates were averaging around 3.1%.
- In late October of 2023, they peaked at a 15-year high of 7.79%.
- When this article was published, rates had declined for several weeks.
- As of late November 2023, they were averaging around 7.29%.
If mortgage rates continue to ease, it could increase home sales in WA State and general real estate activity as we move into 2024. And a growing number of housing market analysts are predicting that very scenario.
Lawrence Yun, the chief economist for the National Association of Realtors (NAR), recently predicted that mortgage rates would hover in the 6% to 7% range by spring 2024.
According to a November 2023 report on the NAR website:
“Yun said the 30-year mortgage and Fed funds rates have likely crested. ‘I believe we’ve already reached the peak in interest rates,’ Yun said. ‘The question is when are rates going to come down?’ Yun forecasts that interest rates will drop to 6-7% by the spring buying season and anticipates more sellers will enter the market.”
The Mortgage Bankers Association has also predicted lower mortgage rates for 2024.
In their latest Mortgage Finance Forecast, the industry group predicted that 30-year home loan rates would drop into the low-6% range (on average) by the second half of 2024. And by the end of 2025, mortgage interest rates are expected to dip even further to 5.5%.
Lower Rates Could Increase Home Sales in Two Ways
The impact of lower mortgage rates is significant in stimulating real estate transactions. If mortgage rates continue to decline, as some have predicted, it could increase home sales across Washington in 2024. Lower rates could boost the real estate market in Washington state from both a supply and demand standpoint.
On the demand side, lower mortgage rates make housing more affordable and bring more buyers into the market. These lower mortgage rates could increase Washington home sales in 2024 while boosting buyer competition.
On the supply side, lower mortgage rates could encourage more homeowners to list their homes for sale, thereby boosting housing market inventory. This could increase the number of home sales in Washington during 2024.
The first point is obvious. The second point warrants some explanation:
Over the past year or so, economists have adopted a new term to describe how higher mortgage rates have reduced housing market inventory across the U.S. They refer to it as the “mortgage rate lock-in effect.”
Homeowners with lower mortgage rates are sometimes reluctant to sell their homes and take on a new mortgage with a higher interest rate. This lock-in effect reduces inventory levels over time, making things more challenging for home buyers.
However, a continued decline in mortgage rates could reduce this reluctance and encourage more homeowners to sell their homes.
Analysts from Morgan Stanley recently predicted this exact scenario. In a report shared with investors, researchers from the investment bank said they expect the housing market to pick up next year as incomes rise and mortgage rates decline slightly.
New Housing Starts Also Needed to Boost Home Sales
Encouraging homeowners to put their homes on the market is one way to stir the real estate market and boost home sales. But that’s just one side of the inventory coin.
Another issue is new housing construction. The State of Washington needs more new homes to keep up with demand and ease the affordability issue. However, builders have faced hurdles over the past few years, which has slowed new construction.
According to WA State’s Economic and Revenue Forecast Council, overall housing construction slowed over the past four years. But the market saw a particularly steep drop in units and building permits in the first half of this year.
Washington State must have 1.1 million new homes built over the next 20 years to keep up with demand. That works out to be about 55,000 new homes per year. However, according to Census data, the state has fallen short of that number, building an average of roughly 35,000 housing units yearly over the past ten years.
New housing construction is also needed to help alleviate the inventory shortage in WA State and, therefore, open up housing availability for homebuyers.
Advice for Washington Home Buyers in 2024
For these reasons, we could see an increase in home sales across Washington in 2024. The real estate market is expected to rise next year due to gradually declining mortgage rates and other economic factors.
The ongoing inventory shortage will probably be the biggest challenge for many home buyers in Washington next year. More properties could come onto the market over the coming months, which could benefit buyers across the state. But overall, supply levels will still fall short of demand.
If you plan to buy a home in Washington in 2024, you’ll want to give yourself plenty of time for house-hunting. It’s also wise to get pre-approved for a mortgage loan before shopping for a home and to research local real estate conditions before entering the market.
You can also increase your chance for success by making a solid initial offer backed by comparable sales analysis. Your real estate agent can help you with this. You might not get a second chance to present your offer in a competitive market with limited inventory.
In our experience, the most successful home buyers spend time and effort preparing for the process ahead of time.
In closing, there is some good news on the horizon regarding a much-welcomed dip in mortgage rates. Experts say lower mortgage rates could increase Washington home sales in 2024. If you’re a homebuyer hopeful, lower rates can help you break into the housing market and make your mortgage more affordable.