Featuring the perspectives of local lending executives and loan officers:

Jeremy Collette
Executive Director of Capital Markets, Guaranteed Rate

Michael Facchini
Branch Manager, Fairway Independent Mortgage

Matt Horney
Senior Lending Manager, Chase Home Lending in Chicago

Corey Shapiro
Home Lending Officer, Citibank

Timothy Tuz
Senior Vice President, Capital Markets, Wintrust Mortgage

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

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.

Michael Facchini: The bond and mortgage-backed securities markets are starting to bet on a potential Fed cut in June, if not even May, rather than any more additional hikes. Inflation reports, job reports and similar indices are starting to get in line (vs. conflicting in months past), all leading me to believe we will see rates hit the sixes in 2024, perhaps touching low 6% or high 5% by year-end.

Matt Horney: 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.

Timothy Tuz: My expectation is that we have reached our peak with Fed raising rates, and given the yield curve is getting less inverted each month, it seems to indicate that the market is predicting a rate decline. I don’t believe that the rates will decline very sharply but do expect the rates to be trending downward over the course of 2024 as the spread between treasury and mortgage-backed securities (MBS) normalizes. My prediction would be somewhere in the mid-sixes by the second half of 2024.

Corey Shapiro: Interest rates tend to move in waves and cycles. We are currently in a period of rising rates, but that could easily change in 2024. Looking into the recent past, the economic stimulus bills of 2020 and 2021 unleashed a substantial amount of money into the U.S. economy ($4.6 trillion to be exact). This led to increased spending, increased prices and ultimately increased rates. As the effect of the stimulus wanes, economic theory tells us that consumer spending should moderate and prices should stabilize. The result will likely be lower rates across the board.

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

Tuz: I believe the biggest challenge will continue to be shortage of existing housing inventory leading to continued compressed purchase volumes as a result. Lenders that will not be able to adapt and withstand a prolonged period of low volumes will likely look to consolidate with other lenders, or some will likely cease their operations. With servicing write-ups being largely behind us and rate declines likely leading to write-downs and margin calls, it will potentially lead to an even more difficult economic environment for lenders who are not part of a well-capitalized organization.

Shapiro: I suspect the start of 2024 will be characterized by today’s lack of inventory in certain real estate markets. Many homeowners currently enjoy historically low interest rates that they locked when rates hit rock bottom in 2020 and 2021. Rightfully, these homeowners may be reluctant to obtain a new loan with today’s comparably high interest rates. However, as rates do come down, inventory should loosen up, and today’s challenges will become tomorrow’s opportunities.

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.

Horney: 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 Chicago, home sales dipped significantly from 2022, while home prices increased. The decreasing sales could indicate reduced competition in the market, but rising prices will pose a challenge for many buyers.
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 reevaluate 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 well-being, and part of this includes guiding them toward resources that will make the process smoother and more achievable.

Facchini: As lenders have right-sized and volumes ebb and flow throughout 2024, keeping service levels consistent is essential, namely in those months where refinances and/or purchases start pouring in. Scalability, speed and good systems will be key.

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

Shapiro: Once the Federal Reserve begins to cut rates, which many analysts expect to see in mid- to late 2024, we should see short-term rates begin to fall. This is known as a “steepening of the yield curve.” With a steeper yield curve, adjustable rates often fall faster than fixed rates. As a result, we may see increased requests for adjustable-rate mortgages (such as the 10/6 ARM and the 7/6 ARM).

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.

Horney: 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. We also expect continued interest in jumbo mortgages, for which Chase offers flexible loan terms, including fixed-rate, adjustable and interest-only.

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. Additionally, there are benefits available for military and veterans, such as Chase’s VA Purchase Closing Cost Benefit. We expect more and more prospective buyers to take advantage of the resources available to help navigate a challenging market.

Facchini: Renovation financing will be a popular option, because the inventory supply is pretty dated and the margins are too thin for most developers/builders to do anything about it. One of the best ways to create desirable inventory for the typical buyer is by taking on a renovation.

Tuz: My expectation is that with short-term interest rates likely retreating and cost of deposits normalizing, ARM loans will once again make a comeback in 2024. In addition, with significant focus on affordable housing and programs, my expectation is that programs such as Special Purpose Credit Program (SPCP) that provide meaningful down-payment and/or closing cost assistance to the borrowers will grow to be a significant portion of first-time homebuyer loans.