When Will Mortgage Rates Go Back Down?

The million-dollar question: “When will mortgage rates go back down?”

A lot of people have answers, but none of them are necessarily right. That makes them opinions, or educated guesses at best.

Here we can discuss what might drive mortgage rates lower, and when that could happen.

The bad news is things might get worse before they get better, as the Fed recently said its fight against inflation has “some ways to go.”

This means even though hope is on the horizon, mortgage rates might climb higher before seeing much needed relief.

The Fed Is Still Fighting Inflation

Yesterday, the Federal Reserve raised its fed funds rate another 75 basis points (0.75%) to a target range of 3.75% – 4.00%.

This is basically their tool to control or fight inflation, and one they’ve utilized several times in 2022 after several years of a very accommodating rate policy.

It came as no surprise to anyone, as these moves are very telegraphed.

However, at the corresponding news conference, Fed chair Jerome Powell noted that the supply of available job openings was high, which typically fuels wage increases.

As workers are paid more, costs for consumers go up, leading to more inflation, something they are actively fighting.

In other words, the Fed may need to keep raising its own fed funds rate until conditions are “sufficiently restrictive,” Powell said.

Still, we could be close to being done with the rate increases, with only about another 1% rise left between now and early 2023.

If the data cooperates between then and now, we might be looking at another 50-basis point increase in December, followed by a pair of 25-basis point bumps in January and March of 2023.

Assuming that’s the end of it, mortgage rates could take cues sometime soon and begin to moderate.

After all, fixed-rate mortgages compete with longer-term securities like the 10-year treasury (because they’re generally held for a decade).

And they’re priced using future rate expectations and forward-looking economic data, which if positive, can allow them to drop before the Fed ends its tightening policy.

If the Fed’s Stance Softens, Mortgage Rates Can Fall Even If the Fed Funds Rate Rises

Economic pundits often think of the Fed as slow to react, and unable to look far into the future. This is why the Fed rarely surprises us.


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