Are Falling Mortgage Rates on the Horizon?

2022 brought inflation rates higher than we have seen in decades. Prices rose three times higher than the targeted rate of 2%, based on the Personal Consumption Expenditure price index- the Fed’s preferred inflation gauge. In March, the Central Bank identified the surge in inflation and raised the benchmark rate by 25bps. In May, they increased it by 50bps, and in June, the Federal Reserve announced a plan for rate hikes of 75bps (per meeting) until our economy slows down. In December, the Fed announced a rate hike between 4.25%-4.5%, a smaller than an anticipated hike, which is great news for the real estate industry.

Over the last six months, the real estate industry has suffered from increased home prices, low inventory, and high mortgage rates. Jerome Powell, the Federal Reserve chair, expressed that slowing rate hikes is appropriate as the economy responds accordingly. So, what does this rate hike mean for home buyers? You can expect borrowing costs to rise from 4.6% (as of September 2022) to 5.2% by the end of 2023. Home buyers should not expect a rate decrease anytime soon either, as the Feds anticipate it will take until 2024 for rates to decrease slowly.

These rate hikes are directly related to increasing interest rates and reducing the demand for mortgages in the industry. The Central Bank has implemented rate hikes to reduce inflation to the preferred 2%. Powell explains, “We continue to anticipate that ongoing increases will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive…”

By the fourth quarter of 2022, mortgage rates peaked higher than 7% following slower-than-expected inflation readings that month. By December, the rate for a 30-year fixed mortgage had declined to 6.30%. While welcome news, interest rates are three percentage points higher than at the beginning of 2022, which has slowed down purchases and refinance applications. You can expect lower purchases in the upcoming months as people still expect more interest rate hikes; however, once things level off, buyers will return to the market in the forthcoming months. The Mortgage Bankers Association predicts that the average 30-year fixed mortgage rate will fall to 5.2% in 2023.


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