Mortgage Rates Are Falling; Here Comes The Housing Boom

As we approach the new year, we’re being greeted by a growing mountain of evidence suggesting that the U.S. will achieve a soft economic landing in 2024. That makes us believe that stocks should rally big-time throughout the next year.

And as an old coach of mine used to say, proper preparation prevents poor performance.

That’s why, over the past month, we have been researching and identifying our top investment themes for 2024 – as well our top stock picks within each trend.

And we just released a brand-new special research report that outlined our results for subscribers of our flagship service Innovation Investor. So, if you’re a member, log in to read those results.

Of course, a few of those top investment themes are about AI. Some have to do with the economy achieving a “soft landing” next year. Another is related to crypto.

But one of those top investment themes comes from an unlikely source: the housing market.

With sky-high interest rates weighing heavily on demand, that sector has struggled for some time now.

But we believe that the U.S. housing market is due for a huge rebound next year. And housing stocks should be some of the market’s best performers in 2024.

The Housing Market Comeback

The story here is pretty simple.

Over the past two years, the housing market has been hit hard by rapidly rising interest rates, which simultaneously shrunk both homebuyer demand and housing supply. In short, buyers don’t want to buy a house with 7% mortgage rates. And sellers definitely don’t want to swap their current 3% mortgage rate with a 7% one.

It’s all about the rates.

And mortgage rates went from 2% in 2021 (a 20-year low) to 8% in 2023 (a 20-year high).

Now those rates are crashing – and we think they’ll keep crashing throughout 2024.

Rates spiked in 2022 and ‘23 because the Federal Reserve was stuck in a relentless fight against inflation. To tame 9% inflation, the Fed had to hike interest rates at the fastest pace in about 50 years. And as interest rates soared, mortgage rates did, too.

But now the inflation fight appears mostly over. The headline inflation rate has crashed from 9% to 3%. The Fed has stopped hiking rates. And more importantly, instead of talking about hiking, the central bank is now talking about cutting rates next year.

In response, the average 30-year mortgage rate has collapsed from 8% in late October to just 6.8% today.

And we’re confident that this drop is just the beginning of a major decline.

Rates Should Keep Falling Throughout ‘24

The graph below illustrates Wall Street’s forecast for the path of interest rates over the next two years.

The expectation is for the Fed to start cutting rates in March 2024 – and to keep on cutting them into 2025.

All told, the market expects interest rates to drop from 5.5% today to 3.5% by early 2025.

That is a huge drop.

And it will lead to an equally big drop in mortgage rates.

Historically speaking, whenever the Fed cuts interest rates, mortgage rates drop. The more the Fed cuts, the lower mortgage rates go.

And if the Fed cuts rates by 200 basis points over the next next one to two years, then mortgage rates should come crashing down to 4% or lower.

This plunge in mortgage rates over the next one to two years will create a huge housing market boom.

The Final Word on Falling Mortgage Rates

Right now, less than 40% of people under the age of 35 own a home. Meanwhile, about 80% of their parents own a home.

That gap isn’t due to younger people not wanting to own a home.

Instead, high mortgage rates are to blame. As rates crept up from 2% in 2021 toward 6%, 7%, and even 8%, all the younger folks that wanted to buy a home saw their affordability crumble. And eventually, most were priced out of the market.

But lower mortgage rates in 2024 will bring those buyers back in.