California Mortgage Rates Continue to Fall as We Close Out the Year

Mortgage rates in California and across the U.S. have declined for the past seven weeks in a row, according to the latest data from Freddie Mac. And with recent policy changes from the Federal Reserve, among other factors, mortgage rates could continue to drop in 2024.

This trend could help to stimulate the California real estate market in 2024, and in two ways. Here’s what you need to know about recent mortgage rate trends at the end of 2023, as well as the general outlook and forecast for 2024.

Mortgage Rates Dropping at the End of 2023

Mortgage rates in California rose substantially over the past couple of years, but they have been trending downward over the past two months or so. This is a positive trend from a home buyer’s perspective, because it will help to increase affordability going forward.

Here’s an update on mortgage rate trends over the past year along with an Outlook for 2024.

In late October of this year, the average rate for a 30-year fixed mortgage loan peaked at 7.79%. That was the highest average in more than 20 years, according to the weekly nationwide survey conducted by Freddie Mac.

Since then, however, mortgage rates in California have been trending downward. In fact, the average rate for a 30-year fixed home loan has declined for the past seven weeks in a row.

When this article was published in mid-December, 30-year mortgage rates were averaging 6.95%, the lowest level in months. The 15-year loan option had an average rate of 6.38%.

According to a recent statement from the research team at Freddie Mac:

“Potential homebuyers received welcome news this week as mortgage rates dropped below seven percent for the first time since August. Given inflation continues to decelerate and the Federal Reserve Board’s current expectations that they will lower the federal funds target rate next year, there will likely be a gradual thawing of the housing market in the new year.”

Fed Policy Decision Could Bring Lower Rates

Recent forecasts and projections suggest that California mortgage rates could continue to decline into 2024. This is partly due to a recent policy shift from the Federal Reserve.

As you probably already know, the Fed implemented a series of rate hikes over the past year or so. They did this as part of their ongoing efforts to curb inflation in the U.S.

The Federal Reserve does not control consumer mortgage rates directly. But their policies do have an indirect effect on the interest rates that California home buyers receive on their mortgage loans. Generally speaking, when the Fed cuts short-term interest rates, mortgage rates tend to drop as well (and vice versa).

So it’s noteworthy that the Federal Reserve’s policy team recently decided to maintain the current federal funds rate, instead of increasing it as they’ve done in the past.

According to a December 13 statement from the Fed’s Open Market Committee:

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent.”

The Fed’s policy committee also signaled that they might implement several additional cuts in 2024, which could lead to lower mortgage rates in California.

In a forecast issued just a few days ago, the Mortgage Bankers Association predicted that 30-year mortgage rates would average around 7% at the start of 2024. (That’s pretty much where they are right now, which makes it a fairly safe bet.)

More importantly, the industry group also predicted that mortgage rates would gradually decline toward the low-6% range by the end of 2024. So borrowers could see better days ahead.

Activating the California Housing Market in 2024

If mortgage rates in California continue to go down in 2024, as expected, it could spur the real estate market and lead to more home sales.

One reason is fairly obvious. When mortgage rates decline like they have over the past few weeks, we tend to see an increase in home-buying activity.

And we’re seeing signs of this already. According to a recent report from the Mortgage Bankers Association, home loan applications nationwide rose by 7.4% during the first week of December.

In 2024, lower mortgage rates could bring more home buyers into the California real estate market. This could have a ripple effect that results in increased competition among buyers, more home sales, and upward pressure on prices.

Less Reluctance Among Sellers?

Lower mortgage rates could also stimulate the California real estate market in a less obvious way. It could bring more homes onto the market, reducing what is currently one of the biggest challenges for buyers across the state.

As we head into 2024, California continues to suffer from a housing market inventory shortage. While the supply problem has been developing for years, rising mortgage rates worsened it by making some homeowners reluctant to sell and give up their current low rates.

But this could begin to change once we clear the holiday season and move into 2024.

In a housing market forecast issued this past fall, the California Association of Realtors made the following prediction:

“Slower economic growth and cooling inflation will bring down mortgage interest rates in 2024 and create a more favorable market environment to spur California home sales next year…”

Now, it seems that some of their predictions are starting to come true.

The rate of inflation has declined in recent months, and the Federal Reserve has shifted its policy in a more rate-friendly direction. All of which could lead to lower mortgage rates and a more active real estate market in California during 2024.