PIC: Calculator and Market Green and Red Arrows | Inflation and Mortgage Trends

Mortgage rates rose substantially during the last year, leading to a significant slowdown in the thriving housing market. Home sales have dropped over the past nine months as house prices have been on a downward trend. The increased average 30-year fixed interest rate has contributed to a decrease in the ability for home purchase, making home buying less affordable for homeowners. For this month, the average rate for mortgages briefly rose to over 7 before dipping back down to the high 6 range. But we're starting to see some early indications of what mortgage interest rates may look like next year.

The Enemy of Long-Term Low-Interest Rates is Inflation.

Mortgage monthly payments are typically higher in periods of higher inflation which has made it tougher for homebuyers to purchase homes if they need to borrow more money. As long as inflation continues to rise, we'll experience greater mortgage rates. We've seen recent indications that inflation may be cooling, giving insight into what might happen in the future. Ali Wolf, Chief Economist at Zonda, cites:

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 will Mortgage Interest Rates be like in the Near Future?

The challenge is inflation. As we see it coming down, typically mortgage rates will follow. We’ve started to see signs of this during the past several weeks. As the Fed slowly works at bringing down inflation, mortgage rates will also see a decrease. Bill McBride, Calculated Risk says:

My current view is inflation will ease quicker than the Fed currently expects.

For 2023, let's hope he's proven correct and accurate.

Bottom Line

Ideally, we hope to see positive real estate market trends that point to mortgage rates coming down. It's just a matter of time. Then, we will see more optimism and interest in homeownership throughout the country. The prospective homebuyer will have a greater range of affordable housing by receiving better mortgage opportunities that lead to the buying power they need for home ownership.


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