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The current state of mortgage rates is a bit of a mystery. On the one hand, the Federal Reserve is aggressively raising interest rates in an effort to combat inflation. This would typically lead to higher mortgage rates. On the other hand, the housing market is cooling, which could lead to lenders charging lower rates in order to attract borrowers.
So, what does it all mean for mortgage rates over the next 12 months? The truth is, it’s impossible to say for sure. There are too many factors at play, and the market is constantly changing.
However, it is important to be aware of the current events, news, and trends that are likely to impact mortgage rates in the coming months. For example, the Federal Reserve is expected to continue raising interest rates, but at a slower pace. The housing market is also expected to continue to cool, but it is unclear how much.
By staying informed about the latest developments, you can make better decisions about your mortgage. For example, if you are considering buying a home, you may want to lock in a rate now before they go even higher. Or, if you are considering refinancing your mortgage, you may want to wait until rates start to decline.
In this blog post, we will take a closer look at the current state of mortgage rates and the factors that are likely to impact them over the next 12 months. If you stick around to the end of the post, we’ll try to help you make sense of it all and develop a home-buying strategy that works for you in your own situation.
There are so many factors to look at, but today we will explore the following topics:
Inflation
Inflation is likely to have a significant impact on mortgage rates in the US over the next 12 months. The Federal Reserve is currently raising interest rates in an effort to combat inflation. This is likely to lead to higher mortgage rates, as lenders will demand a higher return on their investment in order to compensate for the decrease in purchasing power of the money they are paid in the future.
According to Freddie Mac, the average 30-year fixed-rate mortgage rate in the US is currently 7.57%. This is significantly higher than the record-low rates of 2020 and 2021, but it is still below the historical average.
The Federal Reserve is expected to continue raising interest rates over the next 12 months, but at a slower pace. This means that mortgage rates are likely to continue to rise, but at a more gradual rate.
In addition to the Federal Reserve’s interest rate policy, inflation is also likely to have a direct impact on mortgage rates. When inflation is high, lenders demand higher interest rates in order to compensate for the decrease in purchasing power of the money they are paid in the future.
For example, if inflation is 5%, a lender would need to charge a 5% interest rate on a loan in order to maintain the same purchasing power of the money they are paid back.
As a result of inflation, mortgage rates are expected to remain elevated over the next 12 months. However, the exact impact of inflation on mortgage rates will depend on a number of factors, including the Federal Reserve’s interest rate policy, the housing market, and the global economy.
Housing Market Trends
Housing market trends are also likely to have a significant impact on mortgage rates in the US over the next 12 months.
The US housing market is currently cooling, with home sales and prices declining in recent months. This is due to a number of factors, including rising mortgage rates, inflation, and supply chain disruptions.
The cooling housing market is likely to put downward pressure on mortgage rates. This is because lenders will be more willing to lower rates in order to attract borrowers.
However, the impact of the cooling housing market on mortgage rates will depend on a number of factors, including the severity of the slowdown and the Federal Reserve’s interest rate policy.
If the housing market cools down significantly, lenders may be forced to lower rates in order to avoid losses. This could lead to lower mortgage rates over the next 12 months.
However, if the housing market only cools down moderately, lenders may be able to maintain current rates or even raise them. This is because there is still a strong demand for housing in the US.
The Federal Reserve’s interest rate policy will also play a role in determining mortgage rates over the next 12 months. If the Fed continues to raise interest rates, it could put upward pressure on mortgage rates, even if the housing market is cooling down.
Overall, the impact of housing market trends on mortgage rates over the next 12 months is uncertain. However, it is likely that mortgage rates will remain elevated, as the Federal Reserve is expected to continue raising interest rates.
Quantitative Tightening
Quantitative tightening (QT) is the process of the Federal Reserve reducing the size of its balance sheet. This is done by selling assets, such as Treasury bonds and mortgage-backed securities (MBS).
QT is likely to have an upward impact on mortgage rates over the next 12 months. This is because QT will reduce the supply of money in the economy, which will put upward pressure on interest rates.
In addition, QT will make it more expensive for lenders to borrow money from the Federal Reserve. This will also put upward pressure on mortgage rates.
The exact impact of QT on mortgage rates will depend on a number of factors, including the pace of QT and the reaction of the financial markets. However, it is likely that mortgage rates will remain elevated over the next 12 months, as QT is expected to reduce the supply of money in the economy and make it more expensive for lenders to borrow money.
Geopolitical Events
Geopolitical events can have a significant impact on interest rates in the United States, both directly and indirectly.
Directly, geopolitical events can lead to changes in investor sentiment and risk appetite. For example, if investors perceive a greater risk of war or other instability in a particular region, they may be more likely to seek out safe-haven assets, such as US Treasuries. This can drive up demand for Treasuries and push down bond yields, which in turn can lead to lower interest rates for homeowners.
Indirectly, geopolitical events can impact interest rates through their impact on the global economy. For example, a war in a major oil-producing country could lead to higher oil prices, which could boost inflation. In response, the Federal Reserve may raise interest rates in an effort to cool the economy and bring inflation under control.
The upcoming US presidential campaign could also have an impact on interest rates. If the election is closely contested and there is uncertainty about the outcome, this could lead to increased market volatility and higher borrowing costs. Additionally, the policies of the winning candidate could also have an impact on interest rates. For example, if the winning candidate proposes tax cuts or other policies that would increase the government’s budget deficit, this could lead to higher interest rates.
Overall, the impact of geopolitical events on interest rates is difficult to predict and will depend on a number of factors, including the specific events in question, the reaction of investors and policymakers, and the overall state of the economy. However, it is important to be aware of the potential risks and to monitor the situation closely.
Bonus Tip
Look for ways to save money on your closing costs! Closing costs can add up to thousands of dollars, so it’s important to look for ways to save money. Here are a few tips:
- Shop around for lenders. Compare rates and closing costs from multiple lenders before choosing one. You may be able to negotiate lower closing costs, especially if you have a good credit score and a large down payment.
- Ask about discounts. Many lenders offer discounts on closing costs for certain types of borrowers, such as first-time home buyers, veterans, and teachers. Be sure to ask about any discounts you may be eligible for.
- Negotiate with the seller. The seller is typically responsible for paying some of the closing costs, such as the title insurance and transfer taxes. You may be able to negotiate with the seller to have them pay for more of the closing costs.
Conclusion
Mortgage rates are dependent on a complex and ever-changing set of factors, making it difficult to predict their future trajectory. However, by staying informed about current trends and facts, consumers can better understand the forces that are likely to shape mortgage rates in the coming months and years.
If you have any questions about how interest rates will impact your own home buying process, please don’t hesitate to reach out to our team of experts. We would be happy to discuss your individual situation and help you develop a plan to achieve your homeownership goals.
