This past year, rising mortgage rates have slowed the red-hot housing market. Over the past nine months,
we’ve seen fewer homes sold than the previous month as home price
growth has slowed. All of this is due to the fact that the average
30-year fixed mortgage rate has doubled this year, severely limiting
home buying power for consumers. And, this month, the average rate for financing a home briefly rose over 7%
before coming back down into the high 6% range. But we’re starting to
see a hint of what mortgage interest rates could look like next year.
Inflation Is the Enemy of Long-Term Interest Rates
As long as inflation is high, we’ll see higher mortgage rates. Over
the past couple of weeks, we’ve seen indications that inflation may be
cooling, giving us a glimpse into what may happen in the future. The
mortgage market is eagerly awaiting positive news on inflation. As Ali
Wolf, Chief Economist at Zonda, says:
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.”
What Does This Mean for the Future of Mortgage Rates?
As we get through the inflation battle and start to see that coming
down, we should expect mortgage rates to follow. We’ve seen nods of this
over the past couple of weeks. As the Federal Reserve works to bring inflation down, mortgage rates will come down as well. Bill McBride from Calculated Risksays:
“My current view is inflation will ease quicker than the Fed currently expects.”
As we look toward next year, we certainly hope he’s right.
Mortgage rates will come down – it’s just a matter of time. The hope
is we continue to see more positive news on inflation, and that’ll bring
mortgage rates down. This will give prospective homebuyers more buying
power and lead to more homeowners throughout the country.