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Published: Jan 10, 2024 4 min read
A graph made of houses with a percentage sign in the background.
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Last year ended on a positive note for many homebuyers. After briefly flirting with 8% in October, mortgage rates had dropped by more than 1 percentage point by the end of December, prompting a small housing market revival and hopes for an even bigger comeback in 2024.

The question, of course, is whether those lower rates will hang around. After all, 2023 started with rates just above 6% (and the expectation of them going even lower) — but then they turned around and headed higher. Will this year be any different?

According to Skylar Olsen, chief economist at Zillow, this year isn’t likely to repeat the same pattern as last. Rather, she says, “a good characterization of how to think about [2024] would be as another turning-point year.”

The turnabout has everything to do with interest rates: Current mortgage rates have dropped from 7.79% to 6.62% over the past two months — a significant change over a relatively short time period. And amid economic growth and gains in the fight against inflation, most industry analysts look forward to continued improvement.

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But we shouldn’t necessarily expect rates to sustain that fast rate of decline. Olsen points out that the current slide started due to the government’s decision to sell fewer Treasury bonds on the market, which pushed the price up but the yield on the bonds down (taking mortgage rates down, as well).

“So we got this lovely surprise that helped the 10-year [Treasury] fall, and we’re not at 8% anymore,” says Olsen, who spoke to Money in late November.

As the economy continues to slowly settle and the Federal Reserve holds off on further rate hikes, she adds, “that slope of improvement will be more gradual.”

In other words, we shouldn’t expect mortgage rates to return to the record lows of the pandemic years (unless something drastic and unpredictable happens). But lower rates are already impacting would-be buyers: Monthly payments have dropped by several hundred dollars as a result and are easing the affordability crunch many aspiring homebuyers feel.

Home sellers are also benefiting from the improved rate environment. The keywords for homeowners last year were “the locked-in effect.” People who bought a home with a 3% or 4% rate weren’t willing to sell and buy a new one at 7% or 7.5%. And to be clear, many who bought at those ultra-low rates still remain firmly locked in.

But some sellers who bought at slightly higher rates may now realize that rates won’t get near pandemic lows again, and they’re readjusting their rate expectation when it comes to feeling comfortable about selling.

“What we’re seeing is that what they consider a low-enough rate is increasing because our expectation of getting back to low rates is shedding,” says Olsen. “If we don’t expect to get back to 5%, [a rate of] 6% looks OK. It’s like, what are you waiting for?”

The change in seller attitude is already being seen in small increases in new home listings over the past few months, which bodes well for a market that has been inventory-deprived for years. This “turning point” of a year could be quite positive… if current rate and listing trends hold.

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