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Mortgage rates saw a decline for the sixth consecutive week, reaching their lowest point in four months driven by a surge in the bond market, fueled by the increasing probability of the Fed adopting a dovish stance in 2024, as indicated by data last week. The average rate on a 30-year fixed-rate mortgage dropped to 7.03%, according to an article by Reuters.
Probability of a Dovish Fed Drives the Decline in Mortgage Rates
The Fed’s decision has a significant indirect impact on the interest rates for mortgage borrowers. Mortgage rates are closely tied to the performance of 10-year US Treasury yields, which fluctuate based on expectations regarding the Fed's actions and reactions from investors.
If Treasury yields decrease, mortgage rates typically decline in response. The current decline of the 10-year US Treasury yield pushes the mortgage rates lower, proving to be beneficial for the U.S. housing market.
The increasing probability of the Fed cutting the interest rate from next year increases the probability of the mortgage rates decreasing next year. According to the CME FedWatch Tool, there's a 45.6% likelihood that the Federal Reserve will reduce its interest rates, aiming to reach levels between 5% to 5.25%.
Future Mortgage Rate Projections
Redfin Chief Economist Daryl Fairweather, as quoted on Yahoo Finance, estimates the 30-year fixed mortgage rates to drop down to around 6.5-6%, expecting the decline to translate to several hundred dollars in savings for someone considering buying a home.
PerMortgage Bankers Association, as quoted on Forbes, mortgage rates are forecast to stand at around 6.1% by the end of 2024, falling further to 5.5% at the conclusion of 2025, driven by declining Treasury rates and a concurrent narrowing of the spread.
Bank of America head of retail lending Matt Vernon estimates that the Fed’s decision to adopt a dovish stance in 2024 and a potential rate cut can stimulate the housing market significantly. As quoted on Forbes, Vernon states that the drop in mortgage rates might occur in the latter part of 2024.
RSM U.S. real estate senior analyst Crystal Sunbury, as quoted on Forbes, estimates the rates to fall within the range of 6% to 6.5% by the spring of 2024, given no significant economic shocks occur.
Optimism For the Housing Market in 2024
According to Redfin's chief economist Daryl Fairweather, as quoted on Business Insider, the housing market appears to be on the brink of improvement due to significant forthcoming changes that might finally make things easy for homebuyers, who have been dealing with affordability hurdles.
Home sales are predicted to increase by 5%, reaching 4.3 million in 2024. Additionally, home prices are also estimated to decline by 1% next year, driven by the declining trajectory forecast of the average 30-year fixed rate. The pick-up in-home sales are predicted to be backed by the agents, reducing their fees in a bid to attract more home buyers, according to Redfin.
With reduced home-purchasing costs and increasing home sales, the housing forecast appears to be more promising as we enter 2024. According to Fox Business, the housing market is expected to witness improved affordability, potentially attracting prospective buyers, as next year's expected monthly cost for a median-priced home listing will be just under $2,200, down from this year's $2,240. Additionally, new home sales surged 17.7% year over year, according to recent data from the U.S. Department of Housing and Urban Development and the Census Bureau.
AI Revolutionizing the Housing Industry
According to Zillow, as quoted on Business Insider,advancements in AI will enhance the home-shopping and selling process in the upcoming year. Anticipated AI tools will aid real estate agents in expanding their client base and improving content creation, including 3D imagery. Additionally, homebuyers are expected to benefit from AI-powered experiences offering deeper insights into home financing options.
ETFs in Focus
Moderating inflation levels in the United States may prove beneficial to the housing market, adding to the tailwinds for the fund. Falling inflation will keep the mortgage rates low, making home ownership less expensive for first-time buyers.
Below, we mention a few funds to capitalize on the downward trajectory of the mortgage rates.
iShares U.S. Home Construction ETF seeks to track the performance of the Dow Jones U.S. Select Home Builders Index with a basket of 46 securities. The fund charges an annual fee of 0.40%.
iShares U.S. Home Construction ETF has gained about 55.03% year to date and around 54.09% over the past year.
SPDR S&P Homebuilders ETF seeks to track the performance of the S&P Homebuilders Select Industry Index with a basket of 35 securities. The fund charges an annual fee of 0.35%.
SPDR S&P Homebuilders ETF has gained about 48.15% year to date and 46.07% over the past year.
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
Invesco Dynamic Building & Construction ETF seeks to track the performance of the Dynamic Building & Construction Intellidex Index with a basket of 32 securities. The fund charges an annual fee of 0.62%.
Invesco Dynamic Building & Construction ETF has gained about 43.85% year to date and about 38.67% over the past year.
Hoya Capital Housing ETF seeks to track the performance of the Hoya Capital Housing 100 Index with a basket of 100 securities. The fund charges an annual fee of 0.30%.
Hoya Capital Housing ETF has gained about 25.47% year to date and about 22.21% over the past year.
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Falling Mortgage Rates Boost Housing ETFs
Mortgage rates saw a decline for the sixth consecutive week, reaching their lowest point in four months driven by a surge in the bond market, fueled by the increasing probability of the Fed adopting a dovish stance in 2024, as indicated by data last week. The average rate on a 30-year fixed-rate mortgage dropped to 7.03%, according to an article by Reuters.
Probability of a Dovish Fed Drives the Decline in Mortgage Rates
The Fed’s decision has a significant indirect impact on the interest rates for mortgage borrowers. Mortgage rates are closely tied to the performance of 10-year US Treasury yields, which fluctuate based on expectations regarding the Fed's actions and reactions from investors.
If Treasury yields decrease, mortgage rates typically decline in response. The current decline of the 10-year US Treasury yield pushes the mortgage rates lower, proving to be beneficial for the U.S. housing market.
The increasing probability of the Fed cutting the interest rate from next year increases the probability of the mortgage rates decreasing next year. According to the CME FedWatch Tool, there's a 45.6% likelihood that the Federal Reserve will reduce its interest rates, aiming to reach levels between 5% to 5.25%.
Future Mortgage Rate Projections
Redfin Chief Economist Daryl Fairweather, as quoted on Yahoo Finance, estimates the 30-year fixed mortgage rates to drop down to around 6.5-6%, expecting the decline to translate to several hundred dollars in savings for someone considering buying a home.
PerMortgage Bankers Association, as quoted on Forbes, mortgage rates are forecast to stand at around 6.1% by the end of 2024, falling further to 5.5% at the conclusion of 2025, driven by declining Treasury rates and a concurrent narrowing of the spread.
Bank of America head of retail lending Matt Vernon estimates that the Fed’s decision to adopt a dovish stance in 2024 and a potential rate cut can stimulate the housing market significantly. As quoted on Forbes, Vernon states that the drop in mortgage rates might occur in the latter part of 2024.
RSM U.S. real estate senior analyst Crystal Sunbury, as quoted on Forbes, estimates the rates to fall within the range of 6% to 6.5% by the spring of 2024, given no significant economic shocks occur.
Optimism For the Housing Market in 2024
According to Redfin's chief economist Daryl Fairweather, as quoted on Business Insider, the housing market appears to be on the brink of improvement due to significant forthcoming changes that might finally make things easy for homebuyers, who have been dealing with affordability hurdles.
Home sales are predicted to increase by 5%, reaching 4.3 million in 2024. Additionally, home prices are also estimated to decline by 1% next year, driven by the declining trajectory forecast of the average 30-year fixed rate. The pick-up in-home sales are predicted to be backed by the agents, reducing their fees in a bid to attract more home buyers, according to Redfin.
With reduced home-purchasing costs and increasing home sales, the housing forecast appears to be more promising as we enter 2024. According to Fox Business, the housing market is expected to witness improved affordability, potentially attracting prospective buyers, as next year's expected monthly cost for a median-priced home listing will be just under $2,200, down from this year's $2,240. Additionally, new home sales surged 17.7% year over year, according to recent data from the U.S. Department of Housing and Urban Development and the Census Bureau.
AI Revolutionizing the Housing Industry
According to Zillow, as quoted on Business Insider,advancements in AI will enhance the home-shopping and selling process in the upcoming year. Anticipated AI tools will aid real estate agents in expanding their client base and improving content creation, including 3D imagery. Additionally, homebuyers are expected to benefit from AI-powered experiences offering deeper insights into home financing options.
ETFs in Focus
Moderating inflation levels in the United States may prove beneficial to the housing market, adding to the tailwinds for the fund. Falling inflation will keep the mortgage rates low, making home ownership less expensive for first-time buyers.
Below, we mention a few funds to capitalize on the downward trajectory of the mortgage rates.
iShares U.S. Home Construction ETF (ITB - Free Report)
iShares U.S. Home Construction ETF seeks to track the performance of the Dow Jones U.S. Select Home Builders Index with a basket of 46 securities. The fund charges an annual fee of 0.40%.
iShares U.S. Home Construction ETF has gained about 55.03% year to date and around 54.09% over the past year.
SPDR S&P Homebuilders ETF (XHB - Free Report)
SPDR S&P Homebuilders ETF seeks to track the performance of the S&P Homebuilders Select Industry Index with a basket of 35 securities. The fund charges an annual fee of 0.35%.
SPDR S&P Homebuilders ETF has gained about 48.15% year to date and 46.07% over the past year.
Invesco Dynamic Building & Construction ETF (PKB - Free Report)
Invesco Dynamic Building & Construction ETF seeks to track the performance of the Dynamic Building & Construction Intellidex Index with a basket of 32 securities. The fund charges an annual fee of 0.62%.
Invesco Dynamic Building & Construction ETF has gained about 43.85% year to date and about 38.67% over the past year.
Hoya Capital Housing ETF (HOMZ - Free Report)
Hoya Capital Housing ETF seeks to track the performance of the Hoya Capital Housing 100 Index with a basket of 100 securities. The fund charges an annual fee of 0.30%.
Hoya Capital Housing ETF has gained about 25.47% year to date and about 22.21% over the past year.