2024 Mortgage Interest And Housing Price Predictions Aren’t Looking Great

We’re hitting our October Housing is Haunted series from all angles — the economy, personal finance and investing. Because that’s what we do best here at The Juice. Keep you up to speed in the three areas we think can help us all be better with money. 

Yesterday we gawked at the most and least expensive homes you can touch across the US. A few days before that we hit an investment angle on real estate when we asked and answered the question — What Is A REIT? 

In that installment, we touched on mortgage REITs:

The sectors REITs run in go beyond the obvious. While you’ll find REITs in retail, you’ll also find apartment REITs, healthcare REITs, office REITs and industrial REITs. Some REITs span spaces. 

Others are less obvious. Such as mortgage REITs, which provide real estate financing by originating or purchasing mortgages and mortgage-backed securities. 

In today’s Trackstar top five, we feature the mortgage REITs investors across our 100-plus financial media partners are searching for most. And, with one exception, these stocks aren’t doing well. 

Year to date, AGNC Investment Corp (AGNC) is down roughly 15%, Armour Residential (ARR) is off about 40%, Annaly Capital Management (NLY) is lower by approximately 18% and Orchid Island Capital (ORC) is down nearly 31%. 

This is because mortgage REITs tend not to fare well in a high-interest rate environment. Therefore, if you think we’ll avoid a recession, inflation will tame and The Fed will stop raising rates (and maybe even lower them at some point in 2024), these beaten-down names might make sense for long-term investors with a decent appetite for risk. 

As for the one outlier — Arbor Realty Trust (ARR) — which is actually up just over 7% YTD. That stock got a nice pop in mid-June when it was added to the S&P SmallCap 600 Index. Because index funds that track this particular index needed to buy ARR, the stock moved higher. Over the last month, ARR is actually down almost 8%. 

From mortgage REITs to mortgage rates. 

The only 2024 housing market prediction as important as prices might be mortgage interest rates. And, while the news isn’t terrible, it’s not really all that great. 

Don’t look now, but we’re almost at 8%. At last check, the rate on a 30-year mortgage hit 7.9%. We haven’t been this high in 23 years. So, if you put 10% down on a $500,000 home at that rate, your monthly payment, including taxes and insurance, works out to $4,144 a month. 

As the 2024 guesses roll in, nobody’s coming in at less than 6%. Fannie Mae’s projection is on the high end at 6.9%. The National Association of Home Builders (NAHB) comes in at 6.4%. And the Mortgage Bankers Association (MBA) predicts a 30-year mortgage interest of 6.1% in 2024. 

The lowball estimate of 6.1% drops the aforementioned mortgage payment on a $500,000 property to a nice round, but still pretty hefty $3,600 a month. 

Of the organizations that put their crystal ball out this year, both the NAHB and MBA don’t see rates dropping below 6% until 2025. 

Ouch. 

And double ouch because, across the board, all of these groups expect housing prices to increase.

Depending on who you get your data from, predictions on how much housing prices will increase in 2024 range from 0.8% to 4.9%. That high-end prediction comes from Zillow. While we tend to agree that prices will rise by that much or more, we’ll use a number in the middle to make our point. 

If housing prices increase by 2.5%, that $500,000 home — all else equal — becomes a $512,500 home. At a 6.1% interest rate, your monthly payment comes to $3,689. 

As we have been saying since this housing crisis started, you have two, actually three camps of people: 

• Homeowners who are all set and likely have been for quite some time.
• Others who have been wholly and completely priced out of the market. These smallish, anticipated interest rate decreases or previous little dips in home prices do not spell affordability for them. 
• And people sitting on the sidelines with good jobs and tons of money saved — they have personal financial firepower — ready to pounce when they perceive opportunity. 

It’s that latter group who’s probably driving our final datapoint of the day:

• The median down payment on a home increased 11.3% year over year to more than $30,400.

Amid high interest rates and tight inventory, it’s competitive out there. And only people with strong cash reserves and the ability to make that down payment and take on a higher monthly payment can compete effectively enough to actually close a deal and stay solvent, if not financially healthy after the fact. 

The Bottom Line: All of this said, having cash in the bank to make a nice down payment is only part of the story. One of the riskiest moves some homeowners make is biting off more of a monthly payment than they can or probably should chew. Some say they’ll marry the house and date the rate in anticipation of refinancing to a lower interest rate and monthly payment. 

You might be better off renting. The data actually makes this case quite clearly. We dive deep into these numbers from around the country in tomorrow’s Juice.

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