Rising mortgage rates over the past year have cooled the once-sizzling housing market. Fewer properties have sold over the past nine months than the month before as home price growth has halted. This is mostly because the average 30-year fixed mortgage rate has doubled this year, drastically restricting consumers' access to credit and the ability to purchase a home. Additionally, this month the average interest rate for mortgages briefly increased to over 7% before falling back to the high 6% range. However, we are beginning to catch a glimpse of hope for what mortgage interest rates might look like in the coming year.
The worst enemy of low-interest rates is inflation.
We will continue to see higher mortgage rates as long as inflation is strong. Recently, there have been indications that inflation may be slowing down, providing us with a preview of what may come next. The mortgage industry is anxiously awaiting improved financial news including lower inflation. According to Zonda's chief economist, Ali Wolf: “The housing market is expected to face continued uncertainty heading into 2023 as consumers, financial markets, and policymakers work through their respective challenges in today’s economy... we are watching for any additional stability in the MBS market, signs of cooling inflation, and/or less aggressive Federal Reserve action to give us confidence that mortgage rates are past their peak.”
How Will This Affect Future Mortgage Rates?
We can anticipate a decline in mortgage rates as soon as we overcome the inflation problem and start to see those numbers decline. Over the previous few weeks, there have been hints of this. The Federal Reserve will lower mortgage rates as it attempts to reduce inflation. According to Bill McBride of Calculated Risk: “My current view is inflation will ease quicker than the Fed currently expects.”
Just a matter of time will pass until mortgage rates start to decline. The hope is that the inflationary tendencies will be kept at bay, which will lower mortgage rates. This will increase the purchasing power of potential homebuyers and result in more people becoming homeowners nationwide.