If I had a dollar for everytime one of our potential clients said “I’m just going to wait until the rates come down” in 2023, I wouldn’t need to work for half the year. Mortgage interest rates in Texas are still fairly high, compared to what I call a “once in a lifetime event”, the interest rates some of us saw in 2020-2021. 2024 is here and rates are still hanging fairly high. As we know the financial world is always changing, after all, who would have ever thought we would have a global pandemic like we did in 2020? Interest rates, which affect how the economy moves, are a big part of this. Central banks, inflation, and the global economy all work together to influence interest rates. What does that mean for anyone looking to make a big purchase, especially a mortgage, in 2024? Let’s dive into what might affect the interest rates in 2024 and how it could affect everyday people, businesses, and the overall economy.
Who is the Central Bank and How Do Mortgage Interest Rates 2024 Get Decided?
Understanding interest rates requires a comprehensive grasp of the global economic environment (we all have that, right)? All joking aside, it isn’t so complicated, but in general, knowing how interest rates come about isn’t something that is taught to everyone in school. I will break it down to a more digestible- layman’s type terms- for you. First, we need to know, What are Central banks? A Central bank is a financial institution given privileged control over the production and distribution of money and credit for a nation or a group of nations. In modern economies, the Central bank is usually responsible for the formulation of monetary policy and the regulation of member banks. Central banks are inherently non-market-based or even anti-competitive institutions. They are also one of the only legal monopolies in the US. Although some are nationalized, many central banks are not government agencies, and so are often coined as being politically independent. However, even if a Central bank is not legally owned by the government, its privileges are established and protected by law. An example of a Central bank most of us have heard of is the Federal Reserve in the United States. These institutions adjust interest rates to achieve specific economic objectives, such as controlling inflation, stimulating economic growth, or maintaining currency stability. These rates are known as The Federal Funds Rate, which is the benchmark interest rate which financial institutions charge each other for loans. (Everyone pays interest, money isn’t free). As of the start of 2024, the world is grappling with a host of challenges, including the aftermath of the COVID-19 pandemic, geopolitical tensions, and the ongoing climate crisis. Central banks worldwide are closely monitoring these factors to make informed decisions about monetary policy. As we embark on 2024, Central banks are likely (and have already shown) to adopt a cautious approach, carefully balancing the need for economic stimulus with concerns about rising inflation. The delicate task of finding the right balance may result in gradual adjustments to interest rates throughout the year. Don’t expect any immediate positive actions on that front.
Inflation and the Effect on Mortgage Interest Rates
One of the key factors influencing mortgage interest rates in 2024 is inflation. In recent times, many economies have experienced higher than expected inflation, driven by supply chain disruptions, increased demand for goods and services, and rising commodity prices, and everything else that COVID brought with it. Central banks are expected to closely monitor these inflationary pressures and may adjust interest rates to keep inflation within their target range. According to Statista the projected annual inflation rate in the US in 2024 will be around 2.3% this is down significantly from the 8% we saw in 2022. What does this mean for mortgage interest rates? Unfortunately, for the near future we will not see any drastic changes.
“Interest rates have started to decline as the core rate of inflation has dropped significantly. We anticipate this downward trend to continue throughout 2024. The federal reserve is expected to lower interest rates at least 2 to 3 times this year. With lower rates, we can expect an increase in housing sales volume surpassing that of 2023.
Overall, we are optimistic that 2024 will be a more favorable year compared to 2023.” ~David Rodriguez-InterLinc Mortgage~
For borrowers, an environment of low-interest rates can be advantageous, as it makes borrowing more affordable and in turn they can afford a more expensive home. Do you remember those crazy stories you heard in 2020-2021 about sellers getting offers for $100k+ over asking? Well, that is definitely one of the main downfalls of a super low mortgage interest rate. Homes will go faster than the listings can get placed on MLS and only the “strong” prevail. We have maintained the “seller market” status even through these high interest rates. The demand for homes is greater than the supply, which is why it is coined a seller’s market. There were predictions in 2023 that status would change to being in the buyer’s favor; unfortunately, it did not come to reality.
Navigating in a Higher Interest Rate Economy
As individuals, businesses, and investors, it is crucial to navigate the uncertainty of interest rate fluctuations proactively. Stay informed about economic developments, keep an eye on Central bank communications, and be prepared to adapt financial strategies based on changing interest rate scenarios. Having stellar credit is one way to start your navigation. If your credit score is generally strong, there are strategic steps you can take to secure the most favorable interest rate. Approximately 30-45 days before applying (depending on when your creditors report to the credit bureaus), aim to reduce the balances on your revolving credit (credit cards) to 5-10% of their credit limits. It’s important not to confuse this with your monthly statement balance, which should be paid off regularly to avoid interest charges. The objective is to maximize the benefits of your credit cards, such as points and cash back, without incurring interest fees. Focus on the total balance on your credit card at the time of payment to keep your credit utilization low and present yourself as a less risky borrower, even if your credit score is generally strong. However, if your credit score is not favorable, I highly recommend reaching out to The Phenix Group for a complimentary credit analysis. We can provide personalized recommendations based on your specific credit needs and can help with credit repair if that is what you need. I do not suggest you wait until the rates are more favorable. This is when you see the buying frenzy, and if you are not already well prepared you will miss out. Also, buying while the rate is a little higher isn’t the worst option as long as you can qualify. The homes are somewhat more reasonably priced and you always have the option of refinancing when the more favorable rate is available.
Final Thoughts
Ultimately, as we navigate the financial landscape of 2024, economic forces will continue to mold interest rates. Staying informed and agile in response to these changes is paramount for having the ability to make sound financial decisions. Beyond being aware, it is crucial to actively assess and reassess your current and future financial goals, life goals,etc. Embracing a proactive and adaptable approach ensures that you can not only navigate the currents of fluctuating interest rates but also seize opportunities that arise in the ever-evolving financial environment. Moreover, consider seeking professional advice and staying attuned to market trends, as these actions contribute to a well-rounded strategy that can help with your decisions. By fostering financial resilience and adaptability, you position yourself to THRIVE in an environment where change is the only constant.