On February 1, the Federal Reserve announced that it raised the federal interest rate by 0.25% to 4.75%. Many economists anticipate that the Fed will raise its benchmark rate to 5.0% in March, as the government attempts to ease the effects of inflation. In 2022, annual inflation was still high at 6.5%.
In a press conference, Federal Reserve Chair Jerome Powell said that there is increasing evidence that inflation is easing, which means federal rate hikes could stop soon. “We can now say I think for the first time that the disinflationary process has started”, according to Powell.
However, he did note that there will likely be a couple more small rate increases later this winter into the spring. The Federal government wants to get annual inflation down to 2.0%, but this isn’t likely to happen in the near future. “We’re talking about a couple of more rate hikes to get to that level we think is appropriately restrictive,” Powell said.
How Will This Affect Mortgage Rates?
According to the Federal Reserve, the average 30-year fixed-rate mortgage was 6.48% as of the first week of January but fell to 6.12% by of February 9th. RealtyHop previously reported that prominent organizations like Fannie Mae, Freddie Mac, and CoreLogic expect mortgage rates to fluctuate throughout the year, but believe that rates should slightly decrease as the year progresses.
Fannie Mae expects the 30-year fixed-rate mortgage to average 6.0% in Q4 2023, and to drop down below 6.0% at times. While rates remain high, it seems as though buyers are past the low point at the end of 2022. The average 30-year fixed-rate mortgage peaked at 7.08% on November 10 and started the year at nearly 6.5%.
The Federal Reserve influences the direction of mortgage rates, but it doesn’t have complete control over where they go. Mortgage rates are heavily correlated with inflation, and since inflation is quite high at the moment, buyers can expect mortgage rates to stay elevated for the near future.
While inflation remains high, it is significantly lower now than it was last summer. Annual inflation was 6.4% in January but was 9.1% last June. Lawrence Yun, Chief economist at the National Association of Realtors (NAR), points to lower inflation as a primary driver behind the recent drop in mortgage rates. However, he also indicated that there were problems with the current market.
“The gate is beginning to open for home buyers who got shut out in October and November when the rates went above 7%,” Yun mentioned. “However, there is still a housing shortage and not enough listings.”
Buyers shouldn’t wait to enter the market until mortgage rates fall further, because rates likely won’t decline much more throughout the year. NAR believes that rates could dip below 6.0% at some point this year, but that potential 0.12% is not significant enough for a buyer to miss out on a potential property. .
2023 is a tough time to enter the market, but buyers overall face slightly more favorable conditions now than they did during the last few months of 2022. Lower mortgage rates have helped buyers regain some of their purchasing power and stretch their dollar to afford more home. Additionally, the expert consensus is that there will be no growth in home prices throughout 2023, with the possibility of a slight decrease.
