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Mortgage Rates Forecasted to Plummet
Mortgage Rates forecasted to plummet under 3% according to Business Insider Economis
businessinsider.com
"We think we're going to end up with a relatively soggy 2024 when we look back at the end of next year."
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7 Replies
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Say hypothetically Mortgage Rates fall under 3%. What do you expect or predict will happen? Hyperinflation?
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According to some economists and researchers, the possibility that mortgage interest rates will be less than 4% or near 3% by 2024 seems unrealistic. This is solely because the economy does not support such drastic changes. For such changes to occur, several key parameters must be met. In the current situation, that is not likely to happen.
Merger Mortgage: The Key Drivers
The federal policies, business activities, and the intriguing state of the economy all combine to shift or reduce the applied rates. Considering the key parameters needed to attain a state where mortgage rates are below 4% or 3% by 2024.
Some of these key requirements include the following:
Pivotal Policy Decisions By The Federal Reserve
A Change in the Fund Rate:
- If mortgage rates were to drop substantially, the United States government would have to significantly cut the federal fund rate, which is only possible during economic crises.
- Secondly, Investors would be required to change their preferences and expect inflation to remain steady at or close to 2%.
- Again, this is an unrealistic expectation.
- Lately, housing and energy prices have gone out of control, which will pressure monetary policy to act sooner rather than later.
- The Fed has been more accommodating in recent months by cutting rates.
- Still, with inflation dropping, rates below 4 percent in 2024 seem ambitious.
Treasury Yields
10-Year Treasury Bonds
- Mortgage rates strongly correlate with the yield’s performance on 10-year US treasury bonds.
- For mortgage rates to fall below 4%, the yield on 10-year Treasuries has to be much lower, at approximately 2.5% or lower.
Market Conditions:
- In the current market condition, Bonds are likely to fall in price only if there is a strong change in investor behaviors, such as during a global downturn.
Likelihood:
- Economic activity remains high, and the Federal Reserve’s tightening policy negates any possibility of a yield decrease.
Economic Growth and Recession Risk
Severe Economic Downturn:
- During a severe economic downtrend, the market would be able to believe that there is a strong need to encourage growth, which would force the Federal Reserve to lower the interest rate.
- A Chicago Federal Reserve report focuses on how job cuts have reduced consumer spending.
- More dominant household housing market corrections than persisting low rates.
Likelihood:
- The probability of a simultaneous recession in the US has increased compared to the past, as several analysts expect the growth rate to nosedive to a staggering 2024%.
- Yet, in the past, the US economy has always remained quite substantial, which has resulted in a sound recovery.
Housing Market Dynamics
Affordability Pressures:
- The 2023 mortgage rate is above 7%, which has acted as a barrier to entry into the housing market for many potential buyers, resulting in a decrease in house sales.
- However, if rates are lowered, it might increase the demand for properties, which will increase the prices of those properties again, so it is a double-edged sword.
Supply Restrictions
Low inventory is a continued issue, and due to these low inventories, the lower rates on loans may not be beneficial.
Factors That Will Adversely Affect Sub-4% Mortgage Rates In 2024
Federal Deficit And Debt
- There are worries about the US government’s debt and its impact on borrowing.
- It increases the budgets on Treasury Bills, resulting in increased earning rates, which is much higher than the US government needs.
Widening Deficits
Widening deficits will not allow rates to drop significantly and hence cause extreme rates and stability.
Global Issues
Biden has been targeting a boost in the economy and fixing relationships with other countries to improve trade. The goal has been to eliminate possible instability in the economies of different countries and to keep good relations with all of them so that there is no adversary or tension in the markets.
Concerns Within The Banking Sector
Specifically, in the US, with regional banks and lenders, when financial conditions tighten or difficult circumstances arise, banks are reluctant to cut rates, ultimately leading to a reduced consumer base with access to borrowing funds.
Caution and Skepticism
Skepticism also needs to be considered due to overconfidence:
- People started to assume that as the economy improved, interest rates would follow a range in 2021.
- However, that wasn’t the case, and many economists had warned about this change as an example.
Aggressive Approach Forecast
Today’s economic conditions, such as strong employment opportunities and housing unavailability, make sub-4% rates appear as far too rosy projections.
While mortgage rates can go below 4% in 2024, this perspective is not practical since it would mean the US economy is going through a recession or the monetary policy is very expansionary, which is not present today.
Prospective homeowners or those looking to refinance their mortgages should keep a close eye on the market rather than wait for rates to fall below 4.0%. It would be unwise to expect reality to reach such low rate targets or other financial situations that would enable it.
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The expectation of mortgage rates dropping below 4% in 2024 and the even more extreme predictions of drop below 3% are rather radical, and one needs to be careful about such expectations. Following are some issues one needs to weigh:
Historical Context
Going back in history, we realize that lending rates have always been variable and, at times, outrageous. During the pandemic, mortgage rates were just under 3% with the Fed slashing rates. A combination of economic factors needs to be present to return to such levels.
Economic Indicators
Mortgage rates depend on expected inflation rates, employment levels, and economic activity. Any rate cuts will be impeded if inflation persists or growth is above expected levels.
Federal Reserve Policy
The Fed’s stance and interpretation of the market regarding interest rates are paramount. This is especially true if they decide to keep the rates higher for longer to control inflation and ensure mortgage rates aren’t lower than 4%.
Market Sentiment
Political and economic analysts usually have a set of beliefs on which they base their assumptions. When it comes to forecasts, it is Oklahoma all over again! While some believe in the forecast’s reassurance, having a broader picture in mind is always advisable.
Diverse Opinions
The financial community is fairly polarized in its opinions. Experts always predict a cut in rates, and many still justify their claims by providing logical arguments and explaining today’s economic conditions.
Although aggressive analyses can appear attractive, they must be analyzed carefully. Monitoring economic parameters, Fed policy, and market activity will give a better picture of the accuracy of such predictions in 2024.
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How likely is it that inflation will remain stubbornly high?
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The possibility of inflation sustaining its grip on the economy amidst the world’s slowdown suffers from many concatenated issues.
Here are some notable points:
Disruption of the Supply Chain
Lingering Supply chain bottlenecks may result in sustained cost pressure. If they persist, they may keep prices elevated in all sectors.
Condition of the Labor Market
Tight labor markets, on the other hand, may necessitate wage increases, which in turn may induce inflation. Suppose employment continues to increase at its current rate. In that case, consumer spending will not dwindle, which will continue to present inflationary effects.
The Strategy of the Federal Reserve
The Federal Reserve’s sections remain pivotal. Should the Fed maintain its hawkish stance and increase rates to reduce inflation, then inflation will eventually drop. On the contrary, rate hikes of percent points on the Fed rate may result in decreased economic growth.
Global Economic Aspects
Geopolitical conflicts or trade issues may disturb the global supply chain and increase necessities such as fuel prices, which impact inflation within the borders.
Consumer Predictions
Inflation has been very volatile in many places, and if this behavior continues, consumers and businesses are prone to start expecting inflation to remain high. With such expectations set, spending money during the later correlation stages tends to inflate prices.
The Cost of Goods and Services
Other than commodity prices, energy, and food costs also have weighty impacts on inflation. Hence, the uncertainty in commodity price fluctuations contributes to the uncertainty in inflation rates.
The circumstances can be unpredictable, and several elements inhibit inflation in its extremely high range. Telemonitoring the economy, any Fed-related policy changes, and international activities will all be crucial to predicting inflation levels in the future.
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What are the current predictions for inflation in the next quarter?
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Current predictions about inflation in the next quarter are circumspect owing to different quarters’ Flashpoint economic indicators. Let us consider some aspects:
Inflation Rate Forecasts
Analysts remain moderately concerned about inflation, with estimates of approximately 3% to 4% in the year-over-year CPI index. This range suggests a potential slowdown compared to previous peaks.
Federal Reserve Policy
The stance of the Fed, which is the Federal Reserve, will be critical. Should the Fed decide to keep the interest rates as is or indicate the possibility of a cut in the future, that would likely contain inflation.
Supply Chain Improvements
The continued progress in supply chain logistics may relieve some areas of cost pressure, which, together with other factors, may help lower the inflation rate.
Energy Prices
At best, oil and gas market predictions are muddled, determining energy price predictions. However, steadying energy costs across the board might help dampen inflation.
Consumer Demand
High consumer demand, particularly for housing and other services, may continue increasing prices. However, if the demand falters, the outcome might be desirable even for inflation.
There are reasonable projections that point to a go-slow inflation scenario. The state of the economy, actions taken by the Fed, and even conditions in the surrounding global market would be opportunities to evaluate the projected inflation during the next quarter properly.
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