In an effort to bring down inflation, the Federal Reserve took action. In response to this action, mortgage rates jumped up rapidly from the record lows we saw in 2021, which was just up over 7% last October. As a result, buyers that were in the market early on came to realize that their purchasing power was less as interest rates increased. Buyers needed to make decisions based upon this reality, lower their purchase price to stay within their budget, or put a pause on their home purchasing plans and go into wait and see mode.
Today, the rate of inflation is starting to slow, and as a result, we have seen mortgage rates follow suit dipping below last year’s peak. Sam Khater, Chief Economist at Freddie Mac, states “While mortgage market activity has significantly shrunk over the last year, inflationary pressures are easing and should lead to lower mortgage rates in 2023.”
This could be potentially great news if you’re a buyer looking to jump in/back into the housing market. Any drop in mortgage rates will give the buyer more purchasing power by bringing down your monthly mortgage payment. This means the lower mortgage rates that experts forecast for this year may just be what the buyers need to get off the sidelines and back into the game.
While this is great news for the buyers, let’s set the expectations … yes, rates are expected to take a dip in 2023 – but they are not expected to drop back down to the rates we saw in 2021. Greg McBride, Chief Financial Analyst at Bankrate, states “I think we could be surprised at how much mortgage rates pull back this year. But we’re not going back to 3 percent anytime soon, because inflation is not going back to 2 percent anytime soon.”
It’s important to have reasonable expectations of what you can expect this year when it comes to mortgage rates. Speak to a professional mortgage lender to get good sound advice as you start your journey towards homeownership. Remember, knowledge is power that enables you to put your best foot forward. You may be pleasantly surprised with even just a mild drop in mortgage rates on how that will affect your monthly mortgage payment.
If you are just getting into the market, I would suggest as a first step … speak with a professional mortgage lender and get pre-approved. From there, you will get a bit of an education on the process and a good understanding of what your budget will afford you as you start your home search.
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