Over the past several years, mortgage lending has experienced a wild ride. There were many predictions as to where the market would end up, but ultimately it depends on several factors – one of which being economic conditions.
The economy is slowly recovering from the recession, though not at its pre-recession pace. There remain numerous uncertainties, such as trade disputes with China and the Ukraine/Russia conflict. Despite these obstacles, economic growth is expected to pick up steam over the coming months at a moderate rate.
This growth is anticipated to be supported by the Federal Reserve’s ongoing efforts to control inflation. Indeed, they have raised their benchmark interest rate seven times in 2022 and analysts anticipate this trend continuing into 2023.
Another factor that could potentially impact the economy is consumer spending, which continues to rise. It’s uncertain what effect this will have on overall economic activity; however, if it keeps rising at its current rate then mortgage rates could possibly reduce soon after.
Inflation is another significant factor that impacts mortgage rates. The Federal Reserve uses different monetary policies to control inflation, and the higher that rate is, the higher long-term mortgage rates will be.
However, if inflation does decline, the Federal Reserve will likely have no choice but to lower its benchmark interest rate, leading to lower long-term mortgage costs. This explains why many experts anticipate that long-term mortgage rates will start decreasing starting in 2023.
Freddie Mac is forecasting that 30-year fixed-rate mortgage interest rates will average 6.15% this week, down from their peak of 7.08% in mid-November. This is great news for home shoppers as mortgage rates have now reached their lowest points since September 2022.
The spring buying season is just around the corner, potentially bringing more homebuyers back into the market. Unfortunately, supply still cannot keep up with demand according to a recent survey by the National Association of REALTORS(r).
Predictions for mortgage interest rates over the coming weeks
The Federal Reserve is expected to raise its benchmark interest rate this month by 25 basis points, taking it between 4.50% and 4.75%. This is part of their ongoing effort to contain inflation.
With this hike, the Fed anticipates keeping its benchmark rate near 4% for much of this year and into 2023. This will not only allow them to keep up with inflation, but it will also aid the economy in its recovery from a downturn.
Meanwhile, the National Association of REALTORS(r) anticipates that the average rate for 30-year fixed rate mortgage will remain below 6% throughout most of this year. This is encouraging news for home shoppers since lower interest rates provide a major incentive to buy a property.
Some economists predict that higher mortgage rates and rising housing costs will slow home price growth. However, if economic conditions improve, then home values could begin to climb again.