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Are Peak Mortgage Rates Just Ahead? Thumbnail

Are Peak Mortgage Rates Just Ahead?

Are Peak Mortgage Rates Just Ahead?
Inflation remains in control of the economy, which edges closer and closer to being officially defined as being in a recession. The Fed has responded with four consecutive 0.75% interest rate hikes, the most recent one in early November. Inflation is still running high, so expect more increases to follow. While consumers are grumbling about prices, the data shows that they’re still spending, in part because a majority of homeowners have a low-rate mortgage, which acts as a hedge against inflation.

How Long Will Rate Increases Continue?
The final act has likely now begun. We may see one more 0.75% increase by the Fed, but recent comments indicate that it’s becoming concerned about the lagging effect of multiple rate hikes, plus their overall cumulative impact, which tends to sneak up on the economy.

Shelter makes up over 30% of the consumer price index, and softer home prices help drive down rents. Inflation should fall off quickly as other areas of the economy follow suit. Recent layoffs and hiring freezes at major companies indicate that the strong labor market (recently posting a record 10 million job openings) and wage growth are both starting to crack. The Fed will likely stop its attack on inflation in 2023 as a recession takes hold.

How Does a Recession Affect Mortgage Rates?
Over the last five recessions since 1980, mortgage rates have fallen an average of 1.8%, which is helpful for buyers. Many experts think the expected recession will be mild and short.

Things to Keep in Mind
Bidding wars are ending, and you now have more negotiation power. In September, the National Association of Realtors (NAR) stated that there were an average 2.5 offers per sale, down from 3.7 the prior September. A Realtor.com survey recently showed that more sellers are accepting contingencies now.

Affordability should continue to improve. Rates also generally also go down as recessions take hold. If you finance at 7% today, you’re likely to have an opportunity to reduce that rate with a refinance down the road.

Housing prices trend up over time. A correction now creates opportunities for buyers who should be rewarded as time goes on. A shortage of housing, which we still have, will put a floor under home prices.

Don’t let today’s higher rates shock you into shelving your plans.

Adapt, adjust, and keep moving forward. We can help you tackle these challenges with a toolkit of options that can enable you to achieve long-term financial and housing goals. Give us a call to set up a time to discuss any thoughts you may be having about moving up, downsizing or investing in new properties!

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