This past year, rising mortgage rates have slowed the red-hot housing market. Over the past nine months, we’ve seen fewer homes sold than the previous month as home price growth has slowed. All of this is due to the fact that the average 30-year fixed mortgage rate has doubled this year, severely limiting homebuying power for consumers. And, 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 see a hint of what mortgage interest rates could look like next year.
Inflation Is the Enemy of Long-Term Interest Rates
As long as inflation is high, we’ll see higher mortgage rates. 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 the Future of Mortgage Rates?
As we get through the inflation battle and start to see that coming 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. Bill McBride from Calculated Risk says:
“My current view is inflation will ease quicker than the Fed currently expects.”
As we look toward next year, we certainly hope he’s right.
Mortgage rates will come down – it’s just a matter of time. The hope is we continue to see more positive news on inflation, and that’ll bring mortgage rates down. This will give prospective homebuyers more buying power and lead to more homeowners throughout the country.
- Even with higher mortgage rates, the mortgage process doesn’t need to be something you fear. Here are some steps to help as you set out to buy a home.
- Know your credit score and work to build strong credit. When you’re ready, lean on the pros and connect with a lender so you can get pre-approved and begin your home search.
- Any major life change can be scary, and buying a home is no different. Let’s connect so you have an advisor by your side to take fear out of the equation.
If you’re planning to buy a home this year, one of the first steps on your journey is getting pre-approved. Especially in today’s market when mortgage rates are higher than they were just a few months ago, getting a mortgage pre-approval can be a game changer. Here’s why.
What Is Pre-Approval?
To better understand why pre-approval is key, it’s important to know what pre-approval is. The Mortgage Reports explains it like this:
“When you’re ready to take the leap into homeownership, your first step is mortgage preapproval. . . . A mortgage preapproval is when a lender determines you’re qualified for a home loan. Your preapproval letter shows the maximum loan amount you’re approved for (your home buying budget), as well as the specific interest rate and loan term you can expect.”
As part of the pre-approval process, a lender will look at your finances to determine what they’d be willing to loan you. From there, your lender will give you a pre-approval letter to help you understand your true price range and how much money you can borrow. That can make it easier when you set out to search for homes because you’ll know your overall numbers. And with mortgage rates rising and impacting affordability, a solid understanding of your numbers is even more important.
Pre-Approval Can Signal You’re a Serious Buyer
Another added benefit is that pre-approval lets the seller know you’re qualified to buy their house. A recent article from realtor.com notes:
“. . . getting pre-approved can actually improve your chances of falling into the sellers’ good graces, and you’ll want to get it done as early as you possibly can in the home-buying process.”
Even though bidding wars are easing this year as the market shifts, preapproval is still an important part of making a strong offer. It can help a seller feel more confident because it shows you’re serious about their home and that you’re a qualified buyer.
Getting pre-approved for a mortgage is critical. It helps you better understand what you can borrow and shows sellers you’re serious about purchasing their home. Connect with a local real estate professional and a trusted lender so you have the tools you need to succeed as a homebuyer in today’s market.