Welcome to 2024! What’s going to happen with the housing market, and specifically VA loan interest rates? Where do we see them headed?

My name is Evan Kaufman, your VA loan originator here, just to give my ideas on where I think I see the housing market and really mortgage rates pertaining to VA loans going over the next 12 months or so.

Now, if you remember two years ago, we had historic low interest rates in 2020, 2021, and then early 2022. They were so very, very low.

But then, all of a sudden, in 2022, we started seeing them ratchet up, and we started having a really wild environment. There’s a lot of demand for housing, rates going up, people started feeling a lot of squeeze.

And if you’re really feeling disenfranchised about the housing system just because the last couple years have been wild, I completely understand.

Doing this now nearly a decade, I get that.

Hey, we’ve seen some really wild flows just the past couple of years. So what does that mean for 2024? Are we in for another crazy ride?

Well, good news is, rates really started peaking out at the end of last year in 2023, and the Federal Reserve has indicated they don’t plan on raising their fed funds rate again, and possibly even lowering it.

Now, some pundits out there for housing are saying, “Hey, rates are going to go back down. They’re cruising down, FED’s going to cut the rates and everything.”

It’s possible, no doubt about it.

But remember this, for rates to go down, there has to be a reason, just as for rates to go up, there has to be a reason.

If you look back at the end of 2021, the start of 2022, there really started to be a creep up in inflation, things started to cost more.

So one way that the Federal Reserve, who handles a lot of the money supply for the US, they don’t handle it directly but kind of indirectly by raising or lowering their interest rate, and then they can somewhat get direct by purchasing and selling securities.

But look at it this way, they ended up raising their interest rate to help curb inflation.

You’ve got to bring the rate up to slow the economy down, to ideally slow inflation.

So, there’s a reason for raising up all those rates.

Now, they’ve indicated, “Hey, we’re going to stop right now, essentially pausing, and maybe in the foreseeable future, we see it going back down.”

But the only reason it’ll go back down is if there’s a good reason for it happening.

Seeing things where like the economy starts to soften, maybe jobless claims go up, and we just don’t know what we’re going to see that.

Now, the past couple of months here at the end of 23, we started seeing some indications for having good reasons for the Federal Reserve to lower their rates, but that still has yet to be seen here in 2024.

And also remember, just because a Federal Reserve lowers their fed funds rate doesn’t necessarily mean that mortgage rates automatically go down because mortgage rates, while they’re tied very closely to the federal funds rate, it’s not necessarily the same thing.

But the history shows that the two dance very closely.

Sometimes, though, that spread can be really wide, and sometimes it can be really tight, meaning that if the FED funds rate is at 2%, then all of a sudden mortgage rates might be at around 3 to 4%, and sometimes that spread can be a little wider or sometimes it can be a little tighter.

That’s why we even saw over the last couple years sometimes the Federal Reserve would raise the fed funds rate, and mortgage rates would, ironically, go down, which was interesting. But in general, they kind of go hand in hand.

So, we want to look at what is the Fed looking to do over the next year potentially and where’s our economy headed because that dictates their decisions.

So, a lot of folks assuming rates are just going to continue to fall a lot because they have pulled that quite a bit just in the past few months which is wonderful for a lot of buyers.

And what’s Evan’s take on it?

Well, having dealt with a lot of military families from being on the real estate broker sales side to now in the mortgage business, my personal belief over 2024 here is we’re going to end up somewhere in between the two extremes.

So, some folks will assume rates are pulling back down, housing’s going to take right back off, there’s going to be so many buyers want to get back in the game, you better buy now because they’re all going to be gone.

That’s one end of the extreme.

And the other side is, “Hey, the world’s going to heck in a handbasket.”

That seems to be a common one. There’s always fearmongers out there, and all of a sudden, this lull in rates won’t hold forever, they can go back up, and people just aren’t going to be selling or dealing with real estate.

I don’t think that’s the case either.

There’s a good chance that 2024 might just shock people and be a more boring year – a year like what we saw pre-2020.

I think it is very possible.

Think of it this way, in 2021, we had a record year from the real estate professional side – number of sales, loan volumes, housing volume, it was just wild.

In 2022, as rates started to go up, that started to curb transactions, went down, fewer people were buying or selling.

Prices, though, were still going up because there were also fewer sellers, and people were trying to decide what are we doing, people were racing to buy houses and rates were going up. This was really weird.

In 2023, fortunately, rates kept going up, but there were fewer people trying to go buy and fewer people trying to sell.

So at least one side of the equation got a little bit calmer, that supply-demand of people calmed down a little bit in ’23 while rates got really high.

Now rates have pulled back a bit, folks aren’t just all going all into the housing market right away again.

I think we will see some increased demand this spring, which is good.

We need that, a little more demand than what we saw in ’22, and there’s a good chance that 2024 is essentially going to be very similar to 2023 from a demand perspective, just a little bit better. And a lot of indications are trying to show that.

But I know that some folks are very bullish on it, National Association Realtors and such are saying, “Hey, we’re going to have a lot more sales.”

I don’t necessarily see too many more, but I see there being a decent amount of sales increasing over 2023. So that’s a big positive for us.

For interest rates, especially for VA loans, I do see there being a good possibility for us to see rates continuing to float down a little bit.

The main thing is though, we’re going to watch what the Federal Reserve decides to do with their federal funds rate. The only reason they’re going to lower that federal funds rate is if they start seeing concerning economic conditions or just some economic softening overall.

That could be increasing unemployment, changes in people’s spending habits, to where hey, we’re going to pull that rate back a little bit to encourage people to keep moving and spending a bit.

I do think we’re going to see some of that here in the first couple of quarters. So, there’s a decent chance that rate cuts will come from the Federal Reserve over the next 12 months.

Some people assume there’s going to be three, four, five cuts. I think there’s a good chance we might see a couple of those if the economic conditions line up. That’s positive for us buying a home because that generally should mean rates come back down.

But now even if the Federal Reserve doesn’t lower their federal funds rate, there’s still the chance for mortgage interest rates to stay relatively flat and possibly even pull back a little bit.

That’s because if you remember earlier, I mentioned that spread between the federal funds rate and what mortgage rates actually are.

That spread gets really wide when there’s a lot of uncertainty in the market.

So, when people are uncertain about buying homes, then all of a sudden that spread between the treasury rate and actual mortgage rates gets wider. The last couple of years we’ve seen that that spread has been huge.

2024, I think, is a good year with the opportunity as long as there’s no major economic shocks, no big war, no massive depression blowing up, there’s a very good chance that folks will calm down a bit more and that spread will tighten.

The big curveball in 2024, of course, though is the election and what is that going to cost for us.

I have no clue, it’s absolutely insane.

So, we always know that the last one I think four years ago was just wild, we’re going to see where that takes us this year.

It’s looking very likely they’ll have two of the same candidates that we had before, just the question is are we going to have the same amount of pressure pin up issues that we had from before? Are those going to show their face again?

Because that could potentially cause uncertainty again with people buying homes keeping that spread on interest rates higher for longer.

Where do I see those elections going personally?

I’m seeing yes, there’s a definite chance that we’re going to have some more of that anxiety occurring.

Still, I believe the union’s going to hold together and be just fine.

And I think before the elections really start kicking off here in the next 3 to 6 months, we’re going to see rates get a little bit better on that spread, mortgage rates hold pretty well, have a strong buying season.

Not as optimistic as some, but I’m not pessimistic at all either. I think it’ll be a good 2024.

And this means for if you’re trying to use a VA loan in 2024, I think you’re going to have a lot of good opportunity. You’re not going to get pushed out by other loan types, won’t be as much cash buying homes, giving you good opportunities – which is wonderful.

And I think your mortgage rate is going to still be better.

Good news is VA loans, typically the interest rate is much more competitive than a conventional loan, especially on 30-year mortgages, and that’s because it’s backed again by the VA, which is a big plus.

So I see it being a very good year for folks trying to purchase the VA loan because rates are going to be better than what we saw in 2023, and there’s going to still be less demand than what we saw back in like 2021 – in the previous years where it just was really hard sometimes to get a VA loan accepted for some people.

I think we’re going to still have good opportunities for the loan type to work. And that’s where if you’re running into those troubles, my name’s Evan Kaufman, your VA loan originator.

You have questions, please ask me in the comments below or reach out.

We got a lot of good YouTube videos for you to watch. Again, thank you for listening, and let’s go have a good 2024 even though we’re running an election season. Take care.