The beauty of high mortgage rates

High mortgage rates are bad. They reduce affordability, lead to lower home sales, and can cause many job losses related to the industry.

The year 2022 is probably the worst on record for mortgage rates, with the 30-year fixed climbing from sub-3% levels to more than 7%.

This single-handedly spooked the housing market, leading to thousands of price cuts mortgage layoff and the associated closures, and a quick shift from a seller’s market to a buyer’s market.

But there may be a glimmer of hope thanks to the tripling of mortgage rates in less than a year.

And it so happens that if and when they really start to improve, they will feel much less than what they really are.

Your brain will soon think that a 5% mortgage rate is great

because we have seen 30-year fixed mortgage rates exceed 7%and even flirt with 8% ideaAnything less would be a great relief.

This is human nature. Once you’ve experienced the bad, anything will feel better, even if it’s worse than before.

I think it’s safe to say that we won’t be offering a 3% 30-year fixed mortgage rate anytime soon.

Those days have come and gone. However, recent developments have pointed to the potential for significantly lower mortgage rates.

While there has been plenty of pain in 2022, the 30-year certainty has recently enjoyed a decline of about a month.

It all started back on November 10, when CPI report shows big drop in inflation,

This was the report the mortgage industry was expecting, as mortgage rates were just over 7%.

If the report were to turn ugly, we could see rates being pushed up to 7.5% and eventually 8%, depending on how things play out.

But the good news some economists had been hoping for came just in time.

Since then, the 30-year stability has gotten lower and lower and now sits at around 6.25% for the vanilla scenario.

This is about 1% less than about a month ago, which is equally important in terms of the speed of the rate change.

Fortunately, this time mortgage rates fell as opposed to record highs.

anyone in the market buy a houseThis is not only a financial boon but also a huge psychological victory.

In addition to actually getting a cheaper mortgage, it would be great to snag a rate of 6.25% versus 7.25%.

And for some, it can mean the difference between a mortgage approval and a denied loan file.

Are Mortgage Rates Finally Trending Low?

Since the beginning of 2022, the trend has not been our friend regarding mortgage rates.

Famous 30 year fixed mortgage It started the year at 3.22%, and rose steadily to 7.08% at the end of October, with only a few week-to-week improvements.

This meant that mortgage rates were clearly trending higher with zero debate from anyone about it.

But is it possible that we can now say with some confidence that the trend in mortgage rates is turning down?

i track mortgage rate Using Freddie Mac data and including a blurb about how they’re trending, which is partly math and the rest emotion.

While I don’t want to be overly optimistic here, part of me wants to flip the switch to trending. lower,

After all, rates have now declined for three consecutive weeks, and Fed Chair Powell has signaled a lull in rate hikes this month, with expectations for a 50-basis point hike.

That’s less than the four 75-basis point hikes seen earlier this year, and perhaps a sign of the Fed’s dovish stance.

And if the good news regarding inflation continues to come in, mortgage rates could see an even greater drop.

Time will surely understand, as Mortgage rates are lowest in December,

Cautious optimism for mortgage rates

I’d like to see more data before I get too excited. I continue to see reports that show a meaningful decline in inflation.

And the Fed wants to see that too, which is why they plan to raise their fed funds rate even though inflation is low.

Ultimately, the Fed has to stay the course, and will continue to raise rates until at least early 2023.

Likewise, mortgage lenders aren’t going out of their way to drastically reduce mortgage rates because of one or two positive developments.

But if we see more evidence that inflation is coming down, there’s plenty of room for mortgage rates to come down.

Just consider the spread between the 10-year bond yield and the 30-year mortgage rate.

Historically, it has been less than 2%, but it is currently closer to 3%, with the 10-year bond yield pricing set at 3.55% and the 30-year at around 6.50%.

so yeah, The Argument for Sub-5% Mortgage Rates by 2023 is alive and well. And the higher mortgage rates we’ve experienced lately would make a 4.75% mortgage rate really, really cool.

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