Mortgage Rates have improved considerably from their peak in the high 7% range.

Their trajectory this year will be highly influenced by the path of inflation and the Federal Reserve’s actions.

After hiking rates at one of the fastest paces we have ever seen in history to help reduce very high inflation, the market is anticipating that the Fed will begin cutting rates and slow the reduction of their balance sheet.

These actions should help lower mortgage rates.

Inflation Watch

One of the most important items the Fed is watching is their preferred measure of inflation, Core Personal Consumption Expenditures (PCE), which will need to move confidently towards their 2% target.

The most recent inflation reading shows that Core inflation is at 2.9%, which is still above the Fed’s target. 

But the recent 6-month pace is trending at 1.85% on an annual basis and shows that inflation is heading where the Fed wants, it will likely just take some time.

The market is expecting that the Fed should start cutting rates at their May 1 meeting.  If this translates to lower mortgage rates, the additional home buying interest would most likely support home prices rising further.

Home Prices and Mortgage Rates

Housing prices in the US were surprisingly resilient last year in the face of a jump in mortgage rates. Most experts see anywhere between 6% to 7% home price appreciation in 2023 when those final numbers are announced.

Now, with the prospect of interest rate cuts on the horizon, home prices are expected to climb more than previously anticipated, according to Goldman Sachs Research.

Rates have dropped to their lowest level since June 2022 recently and are now hovering in the mid-6 percent range. The decline in rates has opened up demand, which experts say is elevating prices, partly because of the low inventory of homes available for buyers.

In simple terms, lower mortgage rates will lead to more expensive homes in the future – and waiting to purchase will more than likely cost buyers more money.

If you’d like to find out more and discuss strategy moving into 2024, don’t hesitate to reach out to me!

The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.