2023 was certainly an interesting year in the mortgage space amid higher interest rates and a challenging lending environment. 

With that in mind, here’s our 2024 mortgage analysis outlook as well as an overview of the past year in case you’re among those considering the big financial move of a 1031 exchange or purchase of an investment property.

2023 in a Nutshell

Higher mortgage interest rates carried over from 2022 into 2023, with the Federal Reserve raising interest rates four times last year. Higher rates resulted in slightly softer single-family home prices (but not everywhere), creating a more favorable environment for buyers in many localized markets. 

Fortunately, for would-be borrowers, mortgage interest rates also pulled back from highs as interest rate market sentiment shifted in October of 2023 and into early 2024.

Questions remain, however: At the start of the year, the consensus is for interest rates to be lower in 2024 compared to the first three quarters of 2023, but rates have already pulled back substantially from their 2023 highs. 

Overall, real estate spreads seem to be improving. 

2024 Mortgage Analysis and Outlook

At the start of the year, the average 30-year fixed mortgage rate was hovering near 6.70%, according to Mortgage News Daily, which provides averages from Freddie Mac, Mortgage Bankers Association, and FHFA.

Mid to high 6s sure is better than the near 8% levels we saw what seems like the other day in October. Here is what experts see for 2024:

• Fannie Mae sees an average rate of 6.7% for 30-year fixed-rate mortgages in 2024.
• Realtor.com predicts 30-year fixed rates averaging 6.8% in 2024. Per their 2024 Housing Market Forecast, “Although mortgage rates are expected to begin to ease, they are expected to exceed 6.5% for the calendar year,” the report reads. “This means that the lock-in effect, in which the gap between market mortgage rates and the mortgage rates existing homeowners enjoy on their outstanding mortgage, will remain a factor.”
• The National Association of Realtors forecasts an average rate of 6.3% in 2024.

Overall, we are pretty close to these levels now, and of course, individual rates vary depending on credit, product, and other factors. But if you have been on the sidelines waiting for rates to tick lower, now may be a good time to consider getting prepared.

Sellers Have Been Waiting

The narrative about sellers has been that many are waiting to sell because they don’t want ~8% mortgage rates on their next purchase. Times have changed quickly in this respect, as mortgage interest rates have dropped since October.

The result seems to be sellers who are more ready, willing, and able to make concessions to a homebuyer to get a deal done.

New Purchases – Buyers Should Focus on the Deal

We get it. We all want the lowest possible interest rate. But don’t forget to focus on the terms of the deal in front of you!

Sellers have been sitting on inventory for some time now, and as noted above, it seems they are willing to make concessions more readily now in many markets compared to the recent past. 

A hypothetical seller may want to close a deal so they can upgrade to a new piece of real estate now that interest rates are lower compared to late 2023. 

If you are in the market for a new purchase, focus on favorable terms, such as a favorable deposit, concessions after inspections, closing cost assistance, and warranties.

Replacing Debt in a 1031 Exchange

Remember that when you sell a property, you have to purchase a new property of equal or greater value when doing a 1031 exchange. The same amount of equity has to be put into the next deal, otherwise the IRS will see whatever you took out as constructive receipt of funds. This would result in a taxable event.

We recently wrote an article on replacing debt in a 1031 exchange by using Delaware Statutory Trusts (DSTs), which give investors an opportunity to assume a non-recourse loan which they don’t have to apply for, nor are they personally liable for. Give it a read to catch up on how this process works.

U.S. Federal Reserve

Our hazy, cracked crystal ball is showing that seemingly, the worst is behind us after two years of a Federal Reserve (Fed) rate hike campaign designed to tame inflation.

Expectations in 2024 are for lower rates from the Fed, including three to six rate cuts. Some of this optimism may already be priced into popular mortgage products, hence the decline from the October highs in interest rates.

At least at the start of the year, Jerome Powell’s message give us hope that the Fed will be accommodative, creating a more favorable backdrop for mortgage borrowers in 2024 versus the past couple of years.

Conclusion

Mortgage interest rates have pulled back from their October 2023 highs, and prices have relaxed in some (but not all) markets. 

Market experts forecast 30-year fixed mortgage interest rates to remain at near-present levels in 2024. Compared to recent history, 30- and 15-year mortgage rates in the sixes are still quite favorable. The present environment could be a good one for sidelined borrowers who have been on the fence waiting for lower rates than last year, while sellers may be ready to get deals done with more concessions and more willingness to listen to offers.