Boston condo market: Will rates rise this week?
Boston Condos for Sale and Apartments for Rent
Boston condo market: Will rates rise this week?
Just when you thought the worst was over for mortgage rates, they’ve come roaring back.
After four consecutive weeks of declines, the 30-year fixed rate is back on the ascent through February. For a brief moment, rates fell significantly from a 20-year high of 7.08% in the fall, but they’ve since surged by 41 basis points the past three weeks.
The 30-year, fixed-rate mortgage averaged 6.5% for the week ending February 23, up from 6.32% the week prior, according to Freddie Mac.
Despite these increases, many housing market watchers still hold out hope that interest rates already hit their peak last year. However, most experts also expect mortgage rate increases to continue for the next few weeks or until inflation is more clearly under control—whenever that is.
What Will Mortgage Rates Do Next? Watch Inflation, Fed for Clues
Rates for home loans are still caught in a tug-of-war between high inflation and the Federal Reserve’s actions to restrain inflation, which often indirectly pushes long-term mortgage rates higher.
In early February, the Fed raised its federal funds rate by 25 basis points to a new range between 4.50% and 4.75%, keeping in line with previous indications that it would continue hiking rates to contain inflation, but at smaller increases in 2023. The Fed hiked its benchmark interest rate seven times in 2022.
The Fed signaled in a statement following the meeting that it anticipates ongoing increases until inflation reaches its peak target range of 5.25% to 5.5%. Inflation rose to 6.4% for the 12 months ending in January, according to the latest Consumer Price Index (CPI) report.
In the meantime, many economic indicators remain robust, such as the labor market, and increases in personal income and consumption expenditures. Consequently, the Fed may choose to return to more aggressive rate hikes or maintain small increases over a longer period to lower inflation.
“With the Fed committed to monetary tightening until inflation is decidedly moving toward 2%, borrowing costs will remain elevated, keeping housing affordability at the top of the year’s list of challenges,” said George Ratiu, Realtor.com’s director of economic research, in an emailed statement.
For now, housing market stakeholders are keeping a watchful eye on the Fed for signals as to whether they will maintain smaller increases to its benchmark rate when they meet again in March or return to more aggressive tightening measures.
Mortgage Rate Predictions for March 2023
Though the average 30-year, fixed-rate mortgage has cooled from last year, home shoppers remain locked out of the market due to a trifecta of high interest rates, tight inventory and elevated home prices. Consequently, mortgage applications have slumped in recent weeks.
“After a brief revival in application activity in January when mortgage rates dropped to 6.2%, there has now been three straight weeks of declines in applications as mortgage rates have jumped 50 basis points over the past month,” says Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association (MBA), in a news release. “Data on inflation, employment, and economic activity have signaled that inflation may not be cooling as quickly as anticipated, which continues to put upward pressure on rates.”
Here’s how other experts predict market conditions will affect the 30-year, fixed-rate mortgage in the coming months:
- Compass U.S. region president, Neda Navab: There have been signals that mortgage interest rates may be at or near their peak, given recent encouraging news around inflation and a corresponding drop in the U.S. Treasury yields that help set mortgage rates. A sustained drop could push mortgage rates into the 5% range late in the second quarter or in the second half of 2023, but that’s definitely not guaranteed.
- National Association of Realtors (NAR) senior economist and director of forecasting, Nadia Evangelou: “If inflation continues to slow down—and this is what we expect for 2023—mortgage rates may stabilize below 6% in 2023.”
- Freddie Mac: Forecasts the average 30-year mortgage to start at 6.6% in Q1 2023 and end at 6.2% in Q4 2023.
- Realtor.com economist, Jiayi Xu: “Mortgage rates are likely to move in the 6% to 7% range over the next few weeks, which continues to pose a significant challenge to affordability.”
- Zillow Home Loans senior macroeconomist, Orphe Divounguy: “A fight over raising the debt ceiling is likely to drag into the summer, and mortgage borrowers should expect rate volatility as a result.”
What Happens to Mortgage Rates if the U.S. Hits a Debt Ceiling Limit?
Another factor that economists and housing market stakeholders are keeping a watchful eye on is the looming political battle over the debt ceiling, which hit its limit on January 19, forcing the U.S. Treasury to take measures to extend it to June 5. The United States is only authorized to borrow up to the amount of the debt ceiling limit until Congress agrees to raise it. Otherwise, the country is at risk of defaulting on its financial obligations, which would harm the economy and Americans.
“[A] looming debt limit standoff could push rates back up,” said Divounguy in an emailed statement. “This could raise borrowing costs, including mortgage rates, thus hampering an already cold housing market.”
Still, some experts predict the market will see more home shoppers in the coming months.
Mortgage rates and home-price growth should “soften, which, along with cooling inflation, should help bring more prospective buyers into the market during the spring homebuying season,” said Edward Seiler, associate vice president at Mortgage Bankers Association, in an emailed statement.
Source Forbes
