The Case for Sub-5% Mortgage Rates by 2023

While mortgage rates have a good chance of getting worse before they get better, hope might be on the horizon.

The long and the short of it is that mortgage rates go up as inflation goes up, which explains some of the recent increase.

The other driver was the end of the Fed’s mortgage-backed securities (MBS) purchase program, known as Quantitative Easing (QE).

As inflation began to surge, and the Fed dropped out as a buyer of MBS, mortgage rates skyrocketed from below 3% to around 7% today.

However, if and when inflation falls back to more typical levels, mortgage rates could quickly follow suit.

A Sub-5% 30-Year Fixed in the Next Six Months?

While it appears to be a very bold prediction, Barry Habib recently said “we think there’s a high probability that mortgage rates come back below five percent within the next six months.”

His interview on Mauldin Economics was posted on October 14th, meaning mortgage rates could be back in the high 4% range by mid-April.

It sounds crazy, given the current trajectory. After all, NAR chief economist Lawrence Yun just said mortgage rates could test 8.5% next.

And they’re currently over 7% for a standard, vanilla loan scenario, so to think they could drop back to below 5% in short order sounds like a long shot.

But Habib eats, breathes, and sleeps mortgage rates and is the brains behind MBS Highway, which provides in-depth market insights on a daily basis.

So if one person were to have a good guess as to the direction of mortgage rates, it might be him.

He even added that there’s “maybe an outside chance” rates hit those levels by the end of this year, which sounds even more ridiculous.

But again, the man is using logic. And he has received the Zillow and Pulsenomics Crystal Ball Award for the most accurate real estate forecaster on several occasions.

What Would Cause Mortgage Rates to Drop?

Unlike the Fed, which continues to battle inflation head on, and sometimes in the rear-view mirror, Habib is looking bigger picture. That is, beyond just the next month.

He seems to already see hope on the inflation front with monthly readings expected to drift lower. Perhaps inflation is already peaking.

And that lagging indicator is mostly all baked into the 7-8% mortgage rates you’re seeing today.

So once we start getting the favorable reports,…

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