The mortgage market has reached a historic low, reminiscent of the early 2000s when people were still adjusting to writing the year with a “20” instead of a “19.” According to real estate data provider ATTOM Data, lenders issued only 1.28 million home loans of any kind in the first quarter of 2024, marking a nearly 7% decrease from the previous quarter and the fewest since the year 2000. This total includes home purchase mortgages, refinances, and home equity lines of credit (HELOC), underscoring the significant impact of high mortgage rates on the housing market.

The Impact of High Mortgage Rates

The current average rate of 7.03% for a 30-year mortgage, more than double the 2.65% record low of 2021, has driven up borrowing costs to unaffordable levels for many potential homebuyers. This steep increase in rates has made refinancing or even selling a home unappealing for homeowners who secured lower rates during the pandemic. High interest rates have effectively stifled the housing market, reducing both the demand for new mortgages and the supply of homes for sale.

Potential for a Second-Quarter Turnaround

There is a glimmer of hope for a potential turnaround in the second quarter of 2024, given the increase in lending activity during the peak home-buying season of 2023. However, the outlook remains cautious. With little indication that interest rates will decrease significantly, the potential for a substantial rebound in refinance and HELOC lending remains limited. Additionally, the supply of homes for sale shows no signs of increasing, further dampening prospects for a significant market recovery.

The Federal Reserve’s Influence

The trajectory of mortgage rates has been closely tied to the Federal Reserve’s actions. In 2020, the Fed slashed its influential fed funds rateThe Fed Funds Rate is the rate at which member banks of the Federal Reserve (the Fed) lend each other money, usually for overnight loans. More to near zero to stimulate the economy during the pandemic-induced downturn. This move led to a plunge in mortgage rates, which reached record lows. However, as the economy began to recover and inflation concerns grew, the Fed embarked on a campaign of rate hikes in 2022, causing mortgage rates to climb back up.

Future Rate Cuts: A Hopeful Yet Uncertain Prospect

Financial markets are hopeful for rate cuts starting in September 2024 if economic data between now and then indicate that inflation and economic activity are cooling. Fed officials have emphasized that they will not cut rates until they are confident that inflation is firmly on a downward path to their 2% annual target from its current level of 2.7%. The decision to cut rates will depend heavily on the economic data in the coming months, adding an element of uncertainty to the mortgage market’s future direction.

Historical Perspective on Mortgage Rates

To understand the current mortgage rate environment, it is helpful to look back at the historical trends. Mortgage rates started the 2010s around 5.09% and steadily declined, reaching around 3.35% by the end of 2012. In 2013, rates rose due to the Fed’s announcement of plans to reduce bond purchases, peaking at 4.53% in early 2014 before declining again to 3.59% by February 2015.

After the 2016 election, mortgage rates began rising, fluctuating between around 3.5% and 4.9% until the end of 2019. The COVID-19 pandemic in 2020 caused rates to plummet, with the 30-year fixed rate averaging just 2.67% by the end of that year as the Fed cut rates to near zero. Rates remained low around 3% through 2021. However, in March 2022, the Fed began aggressively raising rates to combat inflation, causing mortgage rates to spike. By October 2022, the 30-year fixed rate had reached over 7%, the highest since 2002.

The Current Mortgage Rate Environment

As of late May 2024, the 30-year fixed mortgage rate was around 7.03%, according to data from Freddie Mac. Rates continued to climb in 2023, even breaking above 8% by October, according to Bankrate data. This sustained increase in rates has had a profound impact on the mortgage market, contributing to the historic low in mortgage activity observed in the first quarter of 2024.

Looking Ahead

The current state of the mortgage market reflects the complex interplay of high interest rates, economic conditions, and Federal Reserve policies. While there is potential for some improvement in lending activity in the second quarter of 2024, significant challenges remain. The path forward for the mortgage market will depend heavily on future economic data and the Federal Reserve’s actions. Homebuyers, homeowners, and lenders alike will need to navigate this uncertain landscape with caution and adaptability.

Frequently Asked Questions about the Mortgage Market in 2024