Hi All - Happy Sunday. It’s the last day of the month, which means it’s time for the Last Cast Letter.

Before we dive in, we had 132 new people join this letter since I published it last. First of all, welcome. Secondly, don’t forget to fill out our investor form.

Now, in case you haven’t noticed, prospective home buyers are in a tough spot right now, to say the least.

Despite mortgage rates easing off multi-decade highs, housing affordability really hasn’t improved much. Data from Redfin showed that US homebuyers now need to make $114,000 a year to afford a median-priced home.

This edition is going to break down what’s going on with mortgage rates, what the major institutions are forecasting, and the potential impact of Fed rate cuts. Let’s get to it.

A Look Into the Future

I'm not big into psychics or fortune tellers, but desperate times call for desperate measures, so I'm going to try to highlight what may happen in the future today. 

The average 30-year fixed mortgage rate is 6.92%, meaning housing affordability remains strained. Looking forward to 2025... my crystal ball says it's not looking so good. 

Let's take a look at where Fannie Mae, Wells Fargo, and MBA are forecasting 30-year fixed mortgage rates for 2025.

Fannie Mae's Forecast: 6.2%

Last month, Fannie Mae forecasted 30-year mortgage rates to end 2024 at an average of 5.9%. In this month's forecast, they increased that figure to 6.4%, with a measly drop to 6.2% by 2025.

This comes as financial markets are now pricing in lower odds of aggressive fed funds rate cuts this year, leading to an upward drift in the mid-to-longer range of the interest and mortgage rate curve. 

With its updated mortgage rate forecast, Fannie Mae also made a downward revision on its home sales predictions for 2024 and 2025: 

• 2024: From 5 million to 4.91 million

• 2025: From 5.54 million to 5.4 million

Wells Fargo: 5.75%

Wells Fargo sees 30-year fixed mortgage rates falling to an average of 6.15% by the end of 2024 and down to 5.75% by Q4 2025. 

What's interesting about Wells Fargo's US economic forecast is what it chooses to focus on— the "Self-Defeating Prophecy of Lower Rates." 

Here's how Wells Fargo laid out the paradox: 

The Fed is aware of this effect, and Atlanta Federal Reserve President Raphael Bostic identified it as "pent-up exuberance," with increased spending as a critical factor in the difficulty of bringing down inflation.

The Mortgage Bankers Association: 5.6%

The MBA had the most optimistic forecast, predicting the 30-year fixed mortgage rate to average 6.1% by Q4 2024 and 5.6% by Q4 2025. 

In addition to being the most optimistic, the MBA barely altered its projections in the face of news from the Fed this month.

The Fed's March Meeting and Mortgage Rates

Unsurprisingly, the Federal Open Market Committee (FOMC) voted to leave the benchmark federal funds rate unchanged after its two-day March meeting. That decision marked the fifth consecutive meeting in which the FOMC kept its rate steady between 5.25% and 5.5%. 

In addition to the decision, the Fed penciled in three quarter-point cuts by the end of 2024 and expects three quarter-point rate cuts in 2025, which would take the Fed's key rate to a 3.75% to 4% range by the end of next year. 

However, experts don't see this as a sign that substantial relief from high borrowing costs, particularly for mortgages, is coming any time soon. 

The growing consensus is that the Fed is pulling off a soft landing, which, as it turns out, takes a frustratingly long time. 

Even if rates were to come down, the situation for home buyers might not improve much at all. Here's how Fannie Mae's chief economist, Dough Duncan, breaks down the problem: 

So, new home buyers are essentially stuck between a rock and a hard place… not an ideal place to be.

There you have it, that’s all for now. As always, if you’re interested in investing alongside us, fill out the form below.

— Brooks