Mortgage Rates Will Drop, It Is Just a Matter of Time

Since the spring of this year we have seen the real estate market make a correction with the number of homes sold each month beginning to slow compared to recent years. For a long time the market was out of balance with consistent and steep home price increases and record low rates, but now the trends have changed. This is primarily due to the fact that the average 30-year fixed mortgage rate has quickly doubled this year rising to over 7% and then landing recently in the 6% range. We are beginning to see now what next year may bring in terms of rate trends.

The Inflation and Interest Rate Connection

So long as inflation is high then we are going to see higher mortgage rates. We have recently seen some signs that inflation may be slowing which gives us some insight into the future. Many, including the mortgage industry, are hoping for positive news. 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.”

How Mortgage Rates Will Trend

As we continue to battle through the inflation war and see it starting to come down, we can expect that mortgage rates shall follow. We have seen some signs of this over the past few weeks. As the Federal Reserve works to bring inflation down, mortgage rates will then come down as well. Bill McBride from Calculated Risk says: “My current view is inflation will ease quicker than the Fed currently expects.” As we fast approach the new year, we certainly hope he’s accurate on this. This will help inject the real estate market with some more buying power as we hopefully head towards a healthy balance between buyers and sellers.