The red-hot housing market cooled down a bit this past year because mortgage rates went up. In each of the last nine months, fewer homes have been sold than the month before. This is because the growth of home prices has slowed. All of this is because the average 30-year fixed mortgage rate has doubled this year. This makes it much harder for people to buy a home. And this month, the average rate for financing a home briefly went over 7% before going back down to the high 6% range. But we’re starting to get an idea of what next year’s mortgage interest rates might be like.
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 win the war against inflation and start to see it go down, mortgage rates should go down, too. There have been hints of this in the last two weeks. As the Federal Reserve tries to reduce inflation, mortgage rates will also go down. From Calculated Risk, 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.
It’s just a matter of time before mortgage rates go down. We hope to hear more good news about inflation, which will make mortgage rates go down. This will give people who want to buy a home more buying power, which will lead to more people buying homes all over the country.