Rising mortgage rates over the past year have cooled the sizzling housing market. Less properties have sold over the past nine months than the month before as home price growth has halted. This is all because the average 30-year fixed mortgage rate has doubled this year, drastically restricting consumer ability to purchase a home. Additionally, this month the average interest rate for mortgages momentarily increased to almost 7% before falling down to the high 6% level. However, we are beginning to have a glimpse of what mortgage interest rates might look like in the coming year.

The enemy of long-term interest rates is inflation.

We will continue to see higher mortgage rates as long as inflation is strong. Recently, there have been hints that inflation may be slowing down, providing us with a preview of what may come next. The mortgage market is anxiously awaiting good inflation news. According to Zonda's chief economist, Ali Wolf:

“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 Will This Affect Future Mortgage Rates?

We can anticipate a rise in mortgage rates as soon as we overcome the inflation problem and start to see that number decline. Over the previous few weeks, there have been hints of this. The Federal Reserve will lower mortgage rates as it works to reduce inflation. According to Bill McBride of Calculated Risk:

“My current view is inflation will ease quicker than the Fed currently expects.”

We certainly hope he is correct as we look ahead to the following year.

To sum up

Just a matter of time will pass before mortgage rates decline. The hope is that the inflation story will keep getting better, which will lower mortgage rates. This will increase the purchasing power of potential homebuyers and result in more people becoming homeowners nationwide.