Understanding mortgage rates and their impact on the real estate market — purchasing power, market inventory and more — is an important first step in the home-buying and selling journey. However, the constant change of numbers can be tough to keep up with. The Agency’s preferred mortgage partner, Cross Country Mortgage, is lending their insight, summing up the month’s economic news and what exactly it means for homebuyers and sellers.
The final numbers of the year are in, and here’s the gist of it: inflation is cooling, interest rates are up, but mortgage rates are trending down.
Inflation Update
Prices rose less than expected in November. Year over year, the Consumer Price Index (CPI) declined from 7.7% to 7.1%. The CPI rose just .1% over the previous month, less than the .3% expected, a sign inflation is loosening its grip on the economy. Core Inflation, which strips out energy and food prices, decreased from 6.3% to 6%.
Interest Rates
As predicted, the Federal Reserve hiked rates by another .50BPS to a target rate of 4.25% – 4.5%. The surprise, however, came in their outlook of the projected terminal rate - highest it will go in this cycle - increasing from 4.6% to 5.1%. This indicates ongoing increases are appropriate as they continue their balance sheet reduction. The market reacted negatively as the Fed signaled it intended to keep raising rates in the year ahead in its continued battle against inflation. However, sentiment shifted when Fed Chair Jerome Powell acknowledged the welcome reduction in the pace of inflation and the possibility of a smaller .25% rate hike in February 2023.
Mortgage Rates
The CPI report this week triggered another drop in mortgage rates, which adjusted positively to lower inflation.
Benefits to Agents, Buyers & Sellers
• Lower mortgage rates mean less price compression.
• Buyers see an increase in their buying power with lower rates.
• Inflation reduction leads to lower costs for everyday goods, inspiring confidence in buyers and sellers.
• Home prices are less likely to dip with lower rates and the continued lack of inventory across the marketplace.