Mortgage Rates Just Fell to Their Lowest Rate Since August. Should Buyers Pounce?

For much of 2023, buyers have faced the double whammy of inflated home prices and elevated mortgage rates. But recently, there's been a touch of relief on the mortgage front.

On Dec. 7, the average 30-year mortgage rate fell to 7.03%. And while that's not necessarily the most competitive rate buyers have seen this year, it's an improvement from the typical rates we were seeing over the past three months. In fact, that 7.03% represents the lowest average mortgage rate since August.

If you've been tracking mortgage rates, you may be inclined to make an offer on a home ASAP. But is that the right move?

Mortgage rates could come down even more in 2024

It's encouraging to see mortgage rates creep down toward 7%. And we may even see rates dip below 7% before the end of the year.

You may be inclined to jump on the opportunity to lock in a mortgage at closer to 7% than 8%, which may have been the case a month or so ago. But one thing to keep in mind is that borrowing rates have the potential to drop in 2024 across the board. So you may find mortgage lenders offering more competitive rates in the new year than they are today.

Why so? A big reason borrowing is so costly today is that the Federal Reserve has been raising interest rates to cool inflation. The Fed doesn't set mortgage rates, or any consumer interest rates, for that matter. But when the Fed raises its benchmark interest rate, the cost to banks tends to get indirectly passed along to borrowers.

However, if inflation levels continue to drop, the Fed may cut rates in 2024. If that happens, home buyers could be in for considerably lower interest rates than what they're looking at today.

To be clear, we're well past the days of 3% mortgages. But could mortgage rates drop to 6% or even below in 2024? That's certainly possible.

The one reason to buy a home ASAP

Mortgage rates still have the potential to fall quite substantially from where they are today. But one reason not to wait to sign a mortgage is if you manage to find a great home that meets your needs and fits nicely into your budget.

There's been a glaring shortage of real estate inventory that's likely to continue into 2024. If you come across a home you can see yourself living in, it could pay to get a mortgage immediately -- even if that means locking in an interest rate at just above 7% when you might be able to get a lower one next year.

Plus, a lot of people are deep in holiday mode right now and are largely focused on that. If you find a home that works for you, you may not have much competition. And that could allow you to enjoy some savings on the purchase price of your home, since you may not have competing buyers trying to outbid you.