Mortgage rate forecast June 2024

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Mortgage rate predictions June 2024

This year’s crop of spring homebuyers took on 7 percent and higher mortgage rates. Those costs could change heading into the summer months, as improving inflation pulls rates lower, according to Bankrate’s newest rate forecast.

“A better tone of inflation data and evidence of slowing economic growth should bring mortgage rates below the 7 percent mark,” says Greg McBride, CFA, chief financial analyst for Bankrate. “Whether they stay below 7 percent is contingent on further easing in inflation pressures.”

That doesn’t mean there won’t be rate fluctuations week to week, even day to day — nor that there’ll be a sudden influx of buyers this summer. Just this past week, borrowers backed away when rates ticked up.

“Borrowers remain sensitive to small increases in rates, impacting the refinance market and keeping purchase applications below last year’s levels,” says Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association.

Mortgage rates have stayed elevated primarily due to inflation, which has yet to resettle at the Federal Reserve’s target of 2 percent. Because of that, the Fed keeps delaying a rate cut, creating an uncertain timeline that has investors bidding up 10-year Treasury yields, the benchmark for 30-year fixed mortgage rates.

The central bank will meet again on June 11-12 — around the same time the latest inflation numbers drop. Using those figures and other data, policymakers will decide whether to stand pat or start reducing interest rates.

It’ll likely be the former, says Melissa Cohn, regional vice president at William Raveis Mortgage.

“Estimates for the first rate cut by the Fed have now been pushed back to November,” Cohn says. “This ongoing hawkish tone has caused bond yields to rise and will likely continue to do so until there is fresh economic data revealing that inflation is moderating.”

Current mortgage rate trends

The average rate on 30-year loans was 7.17 percent as of May 29, according to Bankrate’s survey of lenders. While that’s a welcome drop from 8.01 percent on Oct. 25 of last year, it’s still higher than the 6 percent rates seen in January of this year.

When will mortgage rates go down?

Overall, forecasters expect mortgage rates to ease, but they’ve dialed back their expectations for a sharp drop — at least until a Fed cut.

“The Federal Reserve’s anticipated rate cut later this year should lead to better conditions, with improved affordability and more supply,” says Lawrence Yun, chief economist of the National Association of Realtors.

While McBride had initially expected mortgage rates to fall to 5.75 percent by late 2024, the economic reality means they’re likely to hover in the range of 6.25 percent to 6.4 percent by the end of the year.

Mortgage giant Fannie Mae likewise raised its outlook, now expecting 7 percent rates by the end of 2024, compared to an earlier forecast of 6.4 percent.

What to do if you’re getting a mortgage now

Mortgage rates are still at generational highs, but the basic advice for getting a mortgage applies no matter the economy or market:

• Improve your credit score. A lower credit score won’t prevent you from getting a loan, but it can make all the difference between getting the lowest possible rate and more costly borrowing terms. The best mortgage rates go to borrowers with the highest credit scores, usually at least 740. In general, the more confident the lender is in your ability to repay the loan on time, the lower the interest rate it’ll offer.
• Save up for a down payment. Putting more money down upfront can help you obtain a lower mortgage rate, and if you have 20 percent, you’ll avoid mortgage insurance, which adds costs to your loan. If you’re a first-time homebuyer and can’t cover a 20 percent down payment, there are loans, grants and programs that can help. The eligibility requirements vary by program, but are often based on factors like your income.
• Understand your debt-to-income ratio. Your debt-to-income (DTI) ratio compares how much money you owe to how much money you make, specifically your total monthly debt payments against your gross monthly income. Not sure how to figure out your DTI ratio? Bankrate has a calculator for that.
• Check out different mortgage loan types and terms. A 30-year fixed-rate mortgage is the most common option, but there are shorter terms. Adjustable-rate mortgages have also regained popularity recently.

FAQ

• How are mortgage rates determined?
  

  It might seem like a bank or lender are dictating mortgage terms, but in fact, mortgage rates are not directly set by any one entity. Instead, mortgage rates grow out of a complicated mix of economic factors. Lenders typically set their rates based on the return they need to make a profit after accounting for risks and costs.

  The Federal Reserve doesn’t directly set mortgage rates, but it does set the overall tone. The closest proxy for mortgage rates is the 10-year Treasury yield. Historically, the typical 30-year mortgage rate was about 2 percentage points higher than the 10-year Treasury yield. In 2023, that “spread” was more like 3 percentage points.

• When should I refinance my mortgage?
  

  Mortgage rates have jumped to 23-year highs, so not many borrowers are opting to refinance their mortgages now. However, if rates come back down, homeowners could start looking to refinance.

  Deciding when to refinance is based on many factors. If rates have fallen since you originally took out your mortgage, refinancing might make sense. A refi can also be a good idea if you’ve improved your credit score and could lock in a lower rate or lower fees. A cash-out refinance can accomplish that as well, plus give you the funds to pay for a home renovation or other expenses.