Home Loan Rates Will Drop - It is Just a Matter of Time

December 9, 2022
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Since this past spring we have seen the real estate market start to make a correction with the number of homes sold each month starting to cool. For a long time now the market was out of balance with consistent and steep home price increases and record low rates, but now the atmosphere has changed. This is all 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 mortgage rate trends.

The Relationship Between Inflation and Interest Rates

As long as inflation is high then we are going to see higher mortgage rates. We have recently seen some signs that inflation may be cooling 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 get through the inflation war and see it starting to come down, we can anticipate that mortgage rates will 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 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 look toward the new year, we certainly hope he’s correct on this. This will help boost the market with some more buying power as we head towards a healthy balance between buyers and sellers.