2024's real estate market is shaping up to be a promising one, following a meeting of the Federal Reserve on December 13. The result was one of the biggest 2-day drops in mortgage rates in decades.

Interest rates for home loans are closely tied to the 10-year Treasury yield, so they do not often move a lot when adjustments are made to the Federal Funds Rate, which influences how much consumers pay to borrow on things like credit cards and home equity loans. But during the meeting, Fed Chairman Jerome Powell promised three cuts to the Federal Funds Rate in 2024.

This news was music to the ears of investors and led to a record-setting day on Wall Street. Meanwhile, the 30-year fixed mortgage rate took a surprising tumble, from 7.1% on December 12, to 6.8% after the December 13 meeting. The fixed rate then dropped again to 6.65% on December 14.

All of this comes on the heels of the Fed's ongoing battle with inflation. After a year and a half of hyperinflation and a doubling of mortgage rates, the Fed fought back, by increasing its key rate 11 straight times. That brought down inflation from 12% to 3%, which is just a single point short of the Fed's goal. 

With lower inflation and rates predicted to stay in the 6s, the next few months are a great time for homebuyers to flood the market, but they should be realistic about price limits and their ability to borrow large sums of money.

A borrower's mortgage rate depends on loan eligibility and the down payment amount, so unless borrowers have low debt-to-income, 780+ credit scores, and a 75% loan-to-home value ratio, their rate quotes will exceed the very best ones.  

Homebuyers must also deal with low inventory, which has recently worsened from the "lock-in effect."

From early 2020 through the end of 2022, homebuyers braved the Coronavirus Pandemic to purchase homes at a rapid pace. Many were willing to pay over market value because mortgage rates fell to all-time lows. Some homeowners stayed put and refinanced instead, benefiting from the low rates by locking into them for the long term.

According to an early-June RedFin Survey conducted by Qualtrics, "91.8% of homeowners with a mortgage are locked into rates under 6%. Roughly 4 in 5 of them have an interest rate below 5%, and nearly one-quarter have a rate below 3%."

This has caused many homeowners to be reluctant to sell, but a recent Fannie Mae survey confirmed that 45% of refinanced owners do not plan to stay in their homes longer than intended.

"While 21% of mortgage borrowers indicated that being locked-in to a low rate was the leading reason for staying longer in their homes, there were other reasons close behind," such as a fondness for their home (19%) and the fact that home prices are too high to buy another home (13%). "These findings suggest that a fairly strong majority of mortgage borrowers' future moving plans may not be affected by their mortgage rate."

High prices may also not be a hindrance much longer because the average days-on-market rose for listings in 2023. If interest rates continue to decline, they will likely lead to increased inventory. That, in turn, should keep prices fair, as competition rises among sellers.

So, what does 2024 offer for those who have an absolute need to buy or sell? If its last meeting is a foreshadowing, the Federal Reserve will play an important role in energizing the economy with its three rate cuts. If that promise materializes, mortgage rates may continue to slide, while the real estate market becomes a more balanced and reasonable one.

COURTESIES -

Stock Photo: Getty Images

2-Day Mortgage Rate Drop: Mortgage News Daily

Fannie Mae Survey: Fannie Mae

RedFin Survey: RedFin