The Feds Attempts At Curbing Inflation Continue To Impact Mortgage Rates

February 16, 2023

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Could the Fed’s attempt to curb inflation lead to mortgage rates increasing to the high 6% or (shudder) even breaking 7% again? It seems the only reasonable answer is a firm “most likely.”

According to Mortgage News Daily, the average 30 Year FRM is 6.58% as of 02/13/2022. While hitting the low 6% in January seems to have encouraged a slight improvement in market activity as buyers returned – judging by the increase in mortgage applications in January, continuing into February. However, with the Federal Reserve expected to keep hiking its rates to combat inflation, this may lead to mortgage rates, which are not directly tied to the Federal Reserve, continuing their increase.

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Those hoping for declining mortgage rates based on the results in January and early February may regret waiting, given that mortgage rates are only projected to increase in the immediate future – we’re already approaching the highs of mid-November last year

With inflation not showing signs of going away anytime soon, the Feds attempts are expected to continue, at least for the next few weeks and months. Mirroring that outlook, New York Federal Reserve President John Williams said in a speech to a bankers’ group in New York, “We must restore balance to the economy and bring inflation down to 2% on a sustained basis.” Adding that “work is not yet done” and that they would stay the course until it was.

That being said, Philadelphia Fed President Patrick Harker said on Tuesday at the La Salle University 2023 Economic Outllok that they were likely close to pausing rate hikes. He further said, “Rates are now at a level that allows us to slow down and proceed cautiously and, to my mind, the days of raising 75basis points at a time have surely passed.”

So where do we land in this? In these market conditions, it makes sense to hope for the best and plan for the worst. While there is a good chance that the Fed’s hikes cause inflation to come down gradually, it’s not happening overnight, so a little patience will go a long way.

Williams also remarked that growth this year would likely only reach a sluggish 1%, with unemployment reaching over 4%. This, paired with higher mortgage rates, inflation, and fears over a global recession, will likely see real estate markets cooling over the next few months as investors consolidate and prepare to weather out the coming months till the Fed eases its aggressive stance.

Risk-tolerant investors may be able to find good deals from motivated sellers in these conditions. However, generally speaking, it will likely be an excellent time to keep an eye out for new developments and plan your future strategies once the market begins normalizing after a period of low demand before committing to any new investments.