Mortgage Rates Will Come Down, It’s Just a Matter of Time

Rising mortgage rates have slowed the hot housing market over the last year. We've seen fewer homes sold than the previous month over the last nine months as home price growth has slowed. All of this is due to the fact that the average 30-year fixed mortgage rate has more than doubled this year, severely limiting consumers' ability to purchase a home. And, this month, the average mortgage rate briefly rose above 7% before falling back into the high 6% range. But we're getting a sense of what mortgage interest rates might 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. We've seen signs that inflation may be cooling in recent weeks, giving us a glimpse of what might 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?

Mortgage rates should fall as we get through the inflationary period and see it begin to fall. We've seen hints of this over the last few weeks. Mortgage rates will fall as the Federal Reserve works to reduce inflation. Calculated Risk's Bill McBride says:

“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.

Bottom Line
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.

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