January Mortgage Rate Forecast: Steady While Waiting for Spring

January mortgage rate forecast

Mortgage rates might not change much in January, after going through a tumultuous spell toward the end of 2023.

Forecasters expect mortgage rates to fall in 2024, but the decline won't necessarily start in January. Instead, a significant drop in mortgage rates will probably wait until the Federal Reserve cuts short-term interest rates. Financial markets are guessing that the first Fed rate cut will happen in the spring after inflation has gone down for several months in a row.

Why rates are expected to fall in 2024

Mortgage rates respond to inflation: They tend to go up when the inflation rate is high and tend to go down when the inflation rate is low. And if inflation forecasts turn out to be correct, they spell good news for shoppers and mortgage borrowers. The Mortgage Bankers Association and Fannie Mae (a finance giant that securitizes mortgages) expect inflation to slow considerably in 2024.

The consumer price index averaged above 3% in the final three months of 2023, and the MBA and Fannie Mae expect it to fall below 3% in the first three months of 2024 and fall even lower through the rest of the year. If the inflation forecasts prove correct, then the floor will gradually drop under mortgage rates. The descent might remind you of riding an elevator in a hospital: frustratingly slow.

Gyrations at the end of 2023

In contrast, mortgage rates made an ear-popping climb from August through October 2023, then took a dive in November and into December:

• The 30-year fixed-rate mortgage was under 7% at the beginning of August, then topped out at around 8% in late October — an increase of more than a percentage point in three months.

• That increase was followed by a plunge to below 6.5% in some of the second half of December — a decrease of about 1.5 percentage points in a month and a half.

These gyrations can be traced to investors' fears and hopes about the economy. When mortgage rates were going up, markets were unnerved by the persistence of economic growth and inflation. Later, investors became convinced that inflation would continue to decline and that the Fed would cut short-term interest rates within a few months, so mortgage rates went down.