Predictions for Mortgage Rates in 2024 and Beyond


Predictions for Mortgage Rates in 2024 and Beyond


Real estate has undergone a fundamental, significant, and potentially long-lasting transformation due to shifts in interest rates. This isn’t a typical short-term market fluctuation but a profound change in the financial landscape. The prolonged period of easy money, largely driven by accommodative monetary policy, has ended. We now face a fundamentally different environment moving forward.

The Historical Context: A Tale of Two Eras

The High-Interest Era of the 1980s

In the 1980s, borrowing money was expensive. Personal loan interest rates were as high as 22.25%. This high-cost borrowing environment persisted until the turn of the century. The significant drop in interest rates over the subsequent decades was a pivotal financial event, overshadowing major market crises like the Lehman Brothers bankruptcy, the tech bubble meltdown, or Black Monday.

The Low-Interest Era: 2000 to 2020

Fast forward to 2020, borrowing costs had plummeted to 2.25% for fixed-rate loans over 15 years. This 2000 basis point decline over 40 years was a slow and gradual process, but its impact was profound. The drop in interest rates provided a substantial tailwind, boosting the economy and real estate market.

The Impact of Declining Interest Rates

Declining interest rates have numerous positive effects:

  1. Stimulating the Economy: Lower interest rates make borrowing cheaper, encouraging spending and investment.
  2. Increasing Consumer Demand: Reduced borrowing costs increase consumer spending power.
  3. Enhancing Business Profitability: Lower interest expenses improve business margins.
  4. Boosting Asset Values: Reduced discount rates increase the present value of future cash flows, making assets more valuable.
  5. Lowering Capital Costs: Cheaper borrowing costs encourage investment and expansion.
  6. Improving Financing Accessibility: Easier access to capital fuels growth and development.
  7. Reducing Default and Bankruptcy Risks: Lower debt servicing costs make it easier for borrowers to meet their obligations.


The Role of the Federal Reserve

Zero Interest Rates: 2009 to 2021

In response to the global financial crisis, the Federal Reserve slashed the federal funds rate to zero in 2009. This unprecedented move marked the beginning of a prolonged period of near-zero interest rates, which lasted until late 2021. During this 13-year span, the average federal funds rate was a mere 0.5%. This low-rate environment fueled the longest economic recovery and bull market in U.S. history, accompanied by consistently rising home prices.

The Double Payday for Homeowners

Homeowners experienced 2 different financial tailwinds during this period. Not only did the cost of financing plummet, but home prices also appreciated significantly. This combination created substantial wealth for property owners, making it a golden era for real estate.  This era is over, and homeowners sitting on the fence waiting for the golden era to return may be waiting for a decade or more before a major unexpected shift in the market takes place.

The Shift: Rising Interest Rates and Inflation

The End of Easy Money

Inflation began to rise in 2021 and persisted into 2022, forcing the Fed to abandon its accommodative stance. Interest rates were raised dramatically to combat inflation, successfully bringing it under control. However, the era of easy money was over, leading to significant consequences for the real estate market.

The New Normal: Slower Home Price Growth

With higher interest rates, home price growth is expected to slow. Profit margins may become thinner, and investor psychology may not be as uniformly positive as during the period of declining rates. The days of reliable appreciation due to falling rates are likely behind us.

The Refinancing Boom and Its Lasting Impact on the Real Estate Market

Since 2021, the refinancing of home mortgages has seen a significant surge, driven by historically low interest rates. Homeowners across the country took advantage of these favorable conditions, locking in exceptionally low rates to reduce their monthly payments and secure long-term financial stability. As a result, approximately 60% of homes are now locked into interest rates below 4%. This widespread refinancing has created an extreme lock-in effect in the real estate market.

The Lock-In Effect

The lock-in effect refers to homeowners’ reluctance to move because doing so would mean giving up their low-interest mortgages. With current interest rates significantly higher, moving could triple their mortgage payments. Even if they have the opportunity to upgrade to a slightly nicer home, the financial burden often outweighs the benefits. This phenomenon has fundamentally altered the dynamics of the real estate market, making it unlikely that such favorable loan terms will be available again in the near future.

Impact on Housing Inventory

The lock-in effect has also had a profound impact on housing inventory. As homeowners choose to stay put rather than move, fewer homes are available for sale. This reduction in inventory has exacerbated an already tight housing market, limiting options for prospective buyers and contributing to rising home prices.

Hedge Funds and Investment Purchases

Compounding the issue, hedge funds with access to cheap capital have aggressively entered the real estate market, buying up homes as long-term investments. In 2024, investment purchases accounted for approximately 20% of home sales. These investment activities further limit the availability of homes for individual buyers, altering the landscape of homeownership and contributing to the scarcity of properties on the market.

A Changed Real Estate Landscape

The combination of widespread refinancing, the lock-in effect, and increased investment purchases by hedge funds has significantly transformed the real estate market. Homeowners’ unwillingness to move, driven by the prospect of significantly higher mortgage payments, has removed substantial inventory from the market. This new reality, shaped by financial decisions made during a period of historically low interest rates, has created lasting changes in the availability and affordability of homes. As the market adapts to these changes, the long-term effects of this refinancing boom will continue to shape the future of real estate.

The Consensus Outlook

Inflation and Interest Rates

Current consensus suggests that inflation is moving in the right direction and may soon reach the Fed’s target of 2%. As a result, additional rate hikes may not be necessary, potentially leading to a soft landing with a minor recession or no recession at all. This scenario, once considered virtually impossible, now seems plausible.

Future Rate Cuts

It is anticipated that the Fed will begin cutting rates in late 2024. Within 2 to 3 years, the federal funds rate may decline to around 3% to 3.5%, settling there for subsequent years. This is lower than today’s 5.25% to 5.5% but significantly higher than the near-zero rates from 2009 to 2021. As a result, mortgage rates might be expected to stabilize around 5% to 6%.

The Takeaway: Adapting to a New Environment

Embracing Change

Einstein famously said, “Insanity is doing the same thing over and over again and expecting a different result.” It’s equally insane to expect the same results in a different environment. The strategies that succeeded during the period of low and declining rates may not be as effective in the coming years. Adapting to this new environment will be crucial for success in real estate.

Preparing for the Future

Real estate professionals, investors, and homeowners must brace themselves for this new era. Understanding the implications of rising interest rates and adjusting strategies accordingly will be essential. While the landscape has changed, opportunities still exist for those who are prepared to navigate this new reality.


The real estate market has been fundamentally altered by shifts in interest rates. The prolonged period of easy money and low rates is over, replaced by a new environment of higher borrowing costs and slower growth. Adapting to this change will be crucial for success in the coming years. As an investor, the playbook for the remainder of the decade must look different to find success.  As a first time homeowner or home buyer, don’t expect low interest rates to save you and be careful of over leveraging yourself.

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