Featuring the perspectives of local lending executives:

Jeremy Collette
Executive Director of Capital Markets, Guaranteed Rate

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.

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.

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.

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.

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

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.

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.