Featuring the perspectives of local lending executives:

Jeremy Collette
Executive Director of Capital Markets, Guaranteed Rate

Matt Kiker
President, Network Funding, L.P.
President, Texas Mortgage Bankers Association

Jeremy Luke
Senior Lending Manager-Executive Director, Chase Home Lending Houston

What will happen with interest rates in 2024? When do you expect to see any changes?

Matt Kiker: Everyone in the residential real estate and finance industries has been praying for lower rates since the spring. The Mortgage Bankers Association and other economists are predicting lower rates as early as next summer, and most other economists expect rate relief by the end of 2024. The Fed is expected to make cuts next year as soon as they feel that inflation is under control. Higher rates impact everyone, including the government, so there will be pressure to lower rates, especially with the promise of a soft landing for the economy. The most difficult piece of the current rate environment is that investors expect rates to go down in the near future, which compresses current prices and adds to the expense of financing for borrowers.

Jeremy Luke: Across the housing industry, market experts expect a gradual mortgage rate decline from current levels over the next five years. We will likely see fluctuations during this time, influenced by factors such as inflation, the Federal Reserve policy and economic growth. Prospective homebuyers should remain aware of what is changing in the market and act quickly when the timing is right for them to move forward with a purchase. A small decrease can mean huge savings for a buyer in the long run, while a small increase can mean larger payments over time.

It’s understandable to feel overwhelmed by the current state of the housing market with rising interest rates, fluctuating home prices and steep competition. Amid the challenges, it’s important to remember that the housing market is ever-changing, along with the economy. As always, prospective buyers will move forward with a purchase when the timing is right for their specific financial situation.

Jeremy Collette: Right now, I don’t see much relief in sight from this high-interest-rate environment. Inflation is still much higher than the Fed’s 2% target, so, unfortunately, the “higher-for-longer” theme being telegraphed by Fed officials is likely here to stay. The Fed recently moved its Fed funds rate forecast to 5.1% from 4.6% by the end of 2024, so with mortgage rates currently near 8%, maybe they get to the mid-sevens. It’s just amazing how strong the employment market and the consumer is — both major headwinds for Fed rate cuts.

What will be the biggest challenges and opportunities for lenders in 2024?

Colette: Generally, the biggest challenge will be continuing to operate in an extended high-rate environment. I do think there are some very interesting opportunities for nonbank lenders that can fill some of the niches left by banks exiting the lending industry due to balance sheet issues or because of the new bank capital rules.

Luke: We’re currently experiencing an inventory shortage, which makes it challenging for buyers to feel confident that they are entering the market at the right time. As inventory increases and mortgage rates decrease, we’ll see increased confidence among both homebuyers and homesellers.

In Houston, home sales have continued to decrease, offering a boost to inventory, while prices have dipped. While these conditions seem favorable to buyers, rising interest rates have deterred many from entering the market.

Some buyers may choose to pause on their plans to purchase a home as they await more favorable market conditions. This is an opportunity for buyers to re-evaluate their plans, take extra time to become better prepared or even improve their finances, so they’re in better shape when the timing is right for them to return to the purchase process. This is also an opportunity for lenders to educate buyers about the resources available to them and guide them on their path to homeownership. We want buyers to make smart decisions for their long-term financial wellbeing, and part of this includes guiding them toward resources that will make the process smoother and more achievable.

Kiker: We expect the challenge of low inventories, especially in the lower price range for housing, will continue throughout 2024. As long as rates stay high, would-be sellers will stay in place instead of moving to a higher rate mortgage. When rates go down, there will be more qualified buyers, which will increase demand and prices, especially for entry-level homes.

With the pent-up demand for homes coming from first-time homebuyers, there will be an opportunity for move up buyers when rates go down. A buyer who can sell their entry-level home to move up to a more expensive home may be in the best position as rates come down. With the new conforming loan limits, which are expected to be raised to $750,000 for 2024, rates will be competitive for primary residences.

Aside from the traditional 30-year fixed-rate mortgage, which kinds of loans do you expect to be most popular for homebuyers in 2024?

Luke: We anticipate buyers will be particularly interested in loan products that offer lower down-payment options. For example, Chase’s DreaMaker mortgage requires as little as 3% down, and borrowers may be eligible to take advantage of Chase’s homebuyer grant program for up to $5,000 toward closing costs. FHA loans have also increased in popularity in the last year as an affordable option for achieving homeownership.

Aside from affordable loan products, there are also resources available to help on the path to homeownership, such as offers that enable you to lock in your current mortgage rate, savings and assistance programs, and resources to educate you on the ins-and-outs of the homebuying process and responsibilities of homeownership. We expect more and more prospective buyers to take advantage of the resources available to help navigate a challenging market.

Kiker: The 30-year fixed-rate mortgage is by far the most utilized loan for a residence and will continue to be the go-to for most homebuyers. Affordability has been a top industry concern for the past two years as rates have risen and home inventories have dropped. Many bond and down-payment assistance programs have become available for low- to moderate-income borrowers, making the American dream of homeownership a reality for a new generation.

Non-conventional loan products continue to gain popularity because of the increasing complexity found in the documentation of borrower income and assets. For borrowers who do not earn any or all of their income as a W-2 wage, there are programs that allow for alternative documentation of income. These loan programs will continue to grow as borrowers become more and more sophisticated in their methods of earning a living.

Colette: Short-term rates being higher than long-term interest rates, the so-called “inverted yield curve,” make it very challenging to originate ARMs or other short-term fixed-rate loans. I do believe there are some opportunities in the equity extraction space for products like HELOCs and reverse mortgages. Down-payment assistance, non-QM, business-purpose loans and affordable product sectors should continue to grow.