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The housing market cheered as the Federal Reserve<\/strong><\/a> <\/strong>signaled interest rate cuts <\/a>next year after making a series of rapid rate hikes starting in 2022. <\/p>\n While the central bank did not completely rule out the possibility of a rate increase in 2024, that action seems unlikely. Instead, fresh economic projections from central bank officials showed rates would be slashed to a median 4.6% by the end of 2024, suggesting three 25 basis points (bps) cuts from current levels.<\/p>\n The so-called dot plot <\/a>estimates show interest rates falling to a median 3.6% in 2025, indicating four more 25 bps cuts. For 2026, Fed officials projected rates to fall below 3% by the end of 2026 through three more quarter percentage point reductions. <\/p>\n What does this mean for mortgage rates?<\/p>\n \u201cMortgage rates should get better. If the spreads get better, that will be an extra plus,\u201d said Logan Mohtashami, lead analyst at HousingWire. \u201cThe main focus now is that if the economic data gets weaker, bond traders have the green light to take yields lower.”<\/p>\n Mortgage rates<\/a> track the yield on 10-year U.S. Treasuries, which move based on anticipation about the Fed\u2019s actions, what the Fed ends up doing and investors\u2019 reactions. When Treasury yields go down, so do mortgage rates. The 10-year Treasury yield<\/a> hit a low of 4.007% following the Fed’s press conference, declining from 4.202% at market open on Wednesday.<\/p>\n \u201cWhile nobody in the mortgage world would say ’tis the season to be jolly’ based on current market conditions, the Fed\u2019s outlook at its December meeting points to an increased possibility of a happier new year,\u201d said Marty Green, principal at mortgage law firm Polunsky Beitel Green.<\/strong><\/p>\n With the central bank shifting toward the next phase in its fight against rapid inflation, experts expect the path for monetary policy to support further declines in mortgage rates, just in time for a traditionally busy spring housing market.<\/p>\n \u201cThe commentary about three expected cuts next year and no rate hikes is great news for the mortgage industry,\u201d Michael Merritt, senior vice president of customer care and default mortgage servicing at BOK Financial. <\/strong>\u201cThese cuts will allow mortgage rates to fall faster throughout 2024. The conservative expectation of three cuts also paints a positive overall outlook since they are not expecting to have to make large numbers of cuts to fuel economic growth or make increases to offset inflation.\u201d<\/p>\n After hovering below 8%<\/a> at the time of the last FOMC meeting in November<\/a>, mortgage rates<\/a> sit at just under 7%, according to HousingWire\u2019s mortgage rate center on Wednesday.<\/p>\n \u201cWe\u2019re probably at an inflection point where rates have come down enough that more buyers are coming back into the marketplace,\u201d said Melissa Cohn, regional vice president of William Raveis Mortgage<\/strong>.<\/p>\n While mortgage rates are expected to decrease, high home prices combined with low inventory still pose a challenge for potential homebuyers.<\/p>\n \u201cWe don\u2019t expect rates to fall that much in this period and it may not offset rising home prices in hot housing markets. So, homebuyers who wait on the sidelines for better rates next year may find the waiting game didn\u2019t pay the dividends they expected,\u201d said Max Slyusarchuk, CEO of A&D Mortgage.<\/strong><\/p>\n The median price of single family homes in the U.S. is $424,900, which is up 2.4% from last year at the same time, according to Altos Research<\/strong>.<\/p>\n “There are really no national indicators, anywhere in the data, that show home prices currently falling,” Mike Simonsen, president of Altos, said in a recent commentary<\/a>.<\/p>\n While inventory typically rises with higher mortgage rates and falls with lower mortgage rates, there is no signal of any flood of sellers, which would be bearish for home prices, Simonsen noted. <\/p>\n For there to be a supply-demand balance, rates would need to stay higher and cuts would have to come slower than markets are predicting, according to Jack Macdowell, chief investment officer at Palisades Group<\/strong>.<\/p>\n \u201cThe housing market plays a role in this given the contribution to headline inflation calculations,\u201d Macdowell said.<\/p>\n \u201cIf rates come down too much (and mortgage rates follow), we\u2019ll see the current supply-demand imbalance exacerbated as pent-up demand gets released into an undersupplied market, putting upward pressure on home values\u2013and inflation. Until mortgage rates drop below 6% it is unlikely that pent-up deferred sales will meaningfully contribute to supply.\u201d<\/p>\nExpect lower mortgage rates<\/h2>\n