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 homebuying 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:
“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.”
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 Risk
“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.