Will Mortgage Rates Come Back Down?

As long as inflation is high, we’ll see higher mortgage rates. However, economists at Fannie Mae and the Mortgage Bankers Association are expecting rates will come down, it’s just a matter of time.

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Mortgage Rates: A Reaction to Inflation

In the recent surge, mortgage rates achieved their highest point since 2001. In response to the Federal Reserve’s decision to momentarily halt its monetary policy tightening, it is expected that these rates will remain at their current elevated levels for an extended period. Consequently, mortgage origination volumes are anticipated to remain under pressure for the remainder of the year.

The Freddie Mac Primary Mortgage Market Survey, focusing on conventional and conforming loans with a 20% down payment, reveals that the 30-year fixed rate averaged 7.18% as of August 31st, a slight decrease from last week’s 7.23%. For context, the 30-year rate was 5.66% at this time last year.

Fannie Mae’s Housing Forecast for August 2023 forecasts rates to average between 6.8% to 6.7% by the end of 2023, with further decreases anticipated throughout 2024. The current spread, at 2.925 as of August 30th, surpasses the 50-year average of 1.7. This discrepancy arises because mortgage companies are charging higher rates in anticipation of refinancing when rates eventually recede.

The Anticipated Rate Decrease

Economists at Fannie Mae and the Mortgage Bankers Association assert that rates will decline; it’s merely a matter of time. This forthcoming decrease will enhance affordability for prospective homebuyers. Mortgage demand is already on the rise as rates continue to ease from their 2022 peaks.

Fannie Mae’s latest monthly Housing Forecast indicates that the average 30-year fixed rate will remain high at 6.8% during the third quarter of 2023, with a slight dip to around 6.6% by year-end. Rates are not expected to dip below 6% until the fourth quarter of 2024. Overall, Fannie Mae predicts a 30-year mortgage rate averaging 6.6% in 2023 and 6.1% in 2024.

In contrast, MBA’s Mortgage Finance Forecast is more optimistic. It foresees the 30-year mortgage rate falling to 5.9% by the close of 2023. Conditions are predicted to improve further in 2024, with rates dropping below 5% in the fourth quarter.

Pro Tip: Explore the benefits of 2-1 Buydowns for buyers and sellers. Negotiating a seller-paid rate “buydown” may reduce monthly expenses, an option often preferred by sellers over lowering the sale price of their homes. Keep in mind that future rate drops might enable refinancing to a lower rate.

The 2023 housing market is expected to face a paradox of having too few sellers, potentially preventing home values from plummeting. Higher interest rates will continue to temper demand. Simultaneously, historically lower inventory, combined with the demographic demand driven by Millennials, will maintain pressure on prices. The ongoing battle between these forces hinges on how mortgage rates react to inflation.

In Conclusion: Take proactive steps and explore your choices. Instead of trying to time the market, consult with a local real estate expert who can offer invaluable insights for your home search or sale goals. Discover how the current bright spots in our cooling market can create unique opportunities for buying or selling. Remember that mortgage rates are exceptionally volatile, so remain updated by consulting with your mortgage professional for the latest information.

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