As we approach the midpoint of 2023, it almost feels like our 6-7% mortgage rates are the new standard. Whether you’re looking to buy or refinance, it’s a whole different ball game than just a couple of years ago. Bundled with inflation, affordability remains a challenge for many prospective homeowners and renters. The data says it all with tighter inventory, lower days on market, more lease renewals, and home prices ticking back up in some areas. A decline in mortgage rates would provide some much-needed breathing room for the housing market in Colorado. So, when will they come down?
It’s important to understand that no one knows for sure, but we can look to industry experts for potential scenarios. When the Fed raised rates last month, the Federal Open Markets Committee erased the reference to ‘future increases’ we’ve seen previously. This could hint at a pause in rate hikes. Fannie Mae and the Mortgage Bankers Association also predict that 30-year fixed mortgage rates may decline through the end of this year and into the first quarter of 2024.
Listening to the opinions of industry experts, it may be fair to say that interest rates won’t climb much higher, if at all. But for the Fed, it’s all about lowering inflation - the goal with raising interest rates is to put a damper on consumer spending and inflation - hence our current position. Peter Idziak, senior associate at Polunsky Beitel Green, recently stated, "if the Fed stops raising because the data shows the economy weakening and inflation coming down further, then I would expect mortgage rates to decrease during the second half of 2023.” In fact, several experts from Freddie Mac, the National Association of Realtors, and Bank of America believe that mortgage rates will trend down to the lower 6% range, and potentially even below 6% in 2024.
The Mortgage Bankers Association thinks that long-term rates have already peaked, and we may see rates dip below 6% by the end of the year. ING, a global financial institution, forecasts interest rates to decline over 2% by 2025. While these organizations are some of the best sources for information and predictions, the truth is that nobody can say for certain where rates are headed in the short term.
There are numerous economic factors that influence the Fed’s decisions on interest rates. So, when will they come down? We’ll have to wait and see, but fortunately it is a matter of ‘when’, not ‘if’. We can be certain that when rates come down, the housing market will heat up, especially if inventory remains tight.
Is it a Good Time to Buy?
Regardless of the current economic landscape, buying or selling a home should always come down to your personal situation. Yes, rates are considerably higher than in the past several years, but you can always refinance down the road. Also, if you’re listing a home, there’s a good chance you could sell for much more than you bought it for. If that’s the case, you could dedicate some of that profit to buying down the mortgage rate on your dream home. With the higher rates we see today, there may also be less competition for that dream home. When rates go back down, there will likely be more buyers, which can result in increased competition as well as bidding wars, especially in our tight inventory market.
The bottom line: you know better than anyone when it’s time to make a move. While the current market does present challenges, there are always opportunities as well.
