Are Mortgage Rates Finally Declining?
Mortgage rates dropped for the third week in a row last week. According to most analysts, rates are expected to keep falling in 2023 as inflation abates. The board of the Federal Reserve is currently meeting, and it is widely believed they will raise interest rates by a quarter point in their effort to tame inflation. As inflation drops, mortgage rates are certain to follow. The average 30-year fixed rate is currently 5.89%.
Mortgage rates started rising from historic lows in late 2021 and increased another three percentage points in 2022. In their latest forecast, Fannie Mae’s experts predict the 30-year rate to trend down in 2023 and 2024. But all of this depends on whether the Fed can get inflation under control.
In the last twelve months the Consumer Price Index climbed 6.5%. But this is actually a real slowdown compared to where inflation was earlier this year. This is an indication that mortgage rates should start declining further. But the consensus is that mortgage rates won’t return to their historic lows when interest rates were barely above zero a few years ago.
Nationally, home prices have started to decline, but huge drops are not expected. Prices are, in fact, still up over a year ago, but they’ve been falling on a monthly basis. Fannie Mae analysts expect home prices to fall 4.2% in 2023.
The high mortgage rates pushed many prospective buyers out of the market which slowed homebuying demand, putting downward pressure on home prices. But if as expected rates drop further this year, it would remove some of that pressure. On the other hand, home supply is historically low which should keep prices from falling too much.
To sum up, we can expect moderately falling mortgage rates in 2023 and 2024, as inflation eases. Home prices should moderately decline, as well.