If you watch the news you may be aware that the red-hot housing market has been slowed by rising mortgage rates. Fewer homes have sold over the past nine months, which is slowing price appreciation. The 30-year fixed mortgage rate has doubled this year, severely limiting home buying power for consumers. This month, the average rate for financing a home briefly rose over 7% before coming back down into the high 6% range. But we’re starting to hear whispers of what mortgage interest rates could look like next year which would be good news.

Inflation Is the Enemy

High inflation is the enemy and the goal is to stop and then lower the current rising inflation. As long as inflation is high, there will be higher mortgage interest rates for home purchase or refinancing. Over the past couple of weeks, we’ve seen indications that inflation may be cooling, giving us a glimpse into what may happen in the future. The mortgage market is eagerly awaiting positive news on inflation. As Ali Wolf, Chief Economist at Zonda, says:

“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.”

What Does This Mean for Mortgage Rates?

When the overall economy is winning the inflation battle and start to see it come down, we should expect mortgage rates to follow. We’ve seen nods of this over the past couple of weeks. As the Federal Reserve works to bring inflation down, mortgage rates will come down as well.

The Mortgage Bankers Association recently announced they expect mortgage rates to end 2023 at 5.4%, check out the article here. This will give relief to home buyers and allow for more purchase power. Those purchasing a home today with no competition, can look forward to the opportunity to refinance into a lower rate.

Low Inventory Will Continue

As I have written about in the recent past, low inventory will be the story for years to come in the housing market. Housing starts averaged 1.45 million a year until the 2008 subprime collapsed by almost 40%. The continued low number of new housing starts lagged for a decade causing years of undersupply by millions of homes. The housing market did not reach the average number of new home starts until last year. Yes, I said last year. Here is research, Housing Starts Data & Statistics.

Bottom Line

Mortgage rates will come down and give prospective homebuyers more buying power. The continued low inventory of available homes will keep prices relatively stable. The low inventory and dropping interest rates will cause pint up demand to take off into a strong end of 2023 into spring of 2024.