As we enter July 2023, the Federal Reserve’s decision regarding interest rates is eagerly anticipated. In their unanimous decision during the June meeting, the Fed opted to keep rates unchanged. However, the minutes from the meeting reveal a shift in sentiment, suggesting the possibility of a rate hike in July and potentially more increases in the future. This possibility of future hikes in Fed Funds Rates will directly change mortgage interest rates for the rest of this year, and likely into 2024.
A Hawkish Tone Emerges for Mortgage Rates
The release of the minutes from the June Federal Open Market Committee (FOMC) meeting indicated a “hawkish” sentiment among some participants, despite the unified statement at the meeting’s conclusion. What does that mean – it means when the Chairmen of each area of the country consider what future Economics look like, they do not see Inflation coming down.
Because they don’t see Inflation (basically the cost of everything from Gas and Milk to cost of homes) coming down – mortgage interest rates will not likely come down this year either. Near term? While “almost all” Federal Reserve Chairmen at the last meeting favored maintaining the target range for the federal funds rate, some expressed support for a 25 basis point increase during that meeting or in the near future.
Anticipated Trajectory of Interest Rates for End of 2023
Considering the Summary of Economic Projections and recent economic data, the prospects for interest rate hikes beyond July have increased. Although economic evaluations have not shown significant weakness, inflation persists, and the decline in core price pressures has been slower than desired by the Federal Reserve.
Two factors that are contributing to this are high employment rates and extra cash still in household budgets. Because the job market is particularly good for most Industries, families have more disposable cash, and we are still buying things. Student Loan Payments are coming back this fall, and that will drain some of the disposable cash that people have in their budgets, meaning that most Economist think inflation might start coming down after those payments start back up.
Resilience in the Service and Manufacturing Sectors in 2023
The service sector of the economy continues to demonstrate resilience, with the Institute for Supply Management’s barometer for service-related businesses reporting positive growth. New orders and employment in the service sector have shown improvement, while inflation measures indicate a decline in prices paid.
On the other hand, the manufacturing sector has remained sluggish, but it has not reached a level indicative of an imminent recession. The ISM’s manufacturing gauge dipped slightly in June, while new orders improved. Employment in the manufacturing sector remains stable, and prices paid have retreated after a recent increase.
Employment and Wage Considerations 2023
The June employment report provided a mixed picture. While 209,000 new jobs were added, representing a solid figure, it marked the fewest new hires in over two years. The unemployment rate declined slightly, but wage growth remained at a level deemed inconsistent with the Federal Reserve’s goal of reducing inflation. This is going to be a big factor going into 2024. Especially since next year is an election year.
If you are running for office in 2024 – are you better off with low interest rates, or people having jobs. My guess is the second. The problem (as we’ve already explained) is that it leaves extra cash for family budgets to spend. Consumer spending is a big item the Fed is trying to stop with higher interest rates.
Impact on Mortgage Interest Rates in 2023
The potential for a rate hike in July, coupled with the overall economic landscape, suggests that mortgage interest rates may experience upward pressure. The recent increase in long-term interest rates and the return to March peaks for the 10-year Treasury yield indicate a potential rise in mortgage rates.
This week, in fact, we saw some of the higher mortgage interest rates we’ve seen in many years. It’s possible that we will see a slight dip from the current high rates. We could see mortgage rates drift back to a sub 6% range this summer. In fact, that seems to be the new “normal.” We feel like consumers are adjusting their household budgets to accommodate a high mortgage payment, with mortgage rates in the 6% range.
As we approach the middle of 2023, the possibility of another rate hike looms, signaling another potential shift in mortgage interest rates. The Federal Reserve’s cautious approach aims to balance economic growth, employment stability, and inflationary pressures. While the current economic indicators suggest no one is having trouble making credit card payments carrying these higher interest rates, the Fed’s goal of achieving its inflation target may require further rate hikes.
Homebuyers and homeowners should stay informed about the evolving mortgage interest rate landscape and begin subscribing to our weekly newsletter to stay informed. As the summer progresses, mortgage rates may increase a bit more, affecting the housing market.
As it turns out more than 90% of current homeowners in the US have a mortgage with an interest rate under 4%. Most of them are under 3%… Because of that, they don’t want to move. They can afford to pay more for most things and are just not selling their homes.
The problem that creates is low inventory. With fewer and fewer and fewer homes on the market – houses cost way more than they did in 2019. With Mortgage Interest Rates being higher, and the cost of homes going so much higher because there just aren’t any to buy – it’s blocking a lot of buyers out of the market.
Once mortgage rates go back down below 5% – the belief is that a lot more people will sell their homes, and the price of homes could go down.
ANOTHER INTERESTING TWIST WITH Mortgage Rates in 2023? A policy change from FHFA that seems to push most first time home buyers to the Government / FHA Lending Programs. This push causes first time home buyer programs to price out differently for many programs. If you are a first time home buyer who is under the Average Median Income Limits for your area – be SURE you mention that to the Lender you are speaking with!!!
To learn more about what we are seeing in the housing market, call Steve and Eleanor Thorne 919 649 5058. We’d love to connect and see what we can do to help you buy a home!
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