Where are Mortgage Rates Headed in 2023

This morning one of my expectations for 2023 came to fruition, sooner than expected but as expected, Consume Price Index showed an increase in January instead of the declines we have seen over the past few reports. That surprise, in addition to the very strong jobs report in early February, gives validity to the language being used by the Fed that “rates will be higher for longer”. Where are Mortgage Rates Headed in 2023?  They were lower in January – and now we are seeing mortgage rates over 7% APR.

As you have probably heard us say, bringing inflation down is like losing weight.  The first few pounds fall right off. It is the last push to hit your target weight where you find the most resistance.  As of right now, we are not close to the Fed’s target inflation rate. Expect a more hawkish stance and language from the Fed.

The consensus is and has been is that the Fed will raise their Fed Runds rates in March.  The Bond Market, where Mortgages are traded, thought maybe the Fed had raised rates all they need to this year – but with the stronger Economic reports, mortgage rates have gone higher.

Given the recent economic data, there are concerns that it may be another 50 basis points instead of 25 basis points. There are still several more important data releases before the next FOMC meeting, another jobs report and another CPI report, being two of these.  Because of all of this, Mortgage Rates are going to be moving on a daily basis.

The economy and the consumer still are very much on the move. While we have witnessed some announced layoffs, mostly technology companies, it has not yet affected the unemployment numbers. The consumer, whether using disposable income or disposable credit is still spending.  This spending is contributing to Inflation, which is what keeps Mortgage Rates higher.

I have watched over the past several weeks, when on the road, and I have noticed several things.  No matter what time you go to the grocery store, the parking lot is almost full.  Lowes, Wal Mart, Tractor Supply, Target, etc., their parking lots are almost always full and people are spending money. People are traveling, planning vacations.  Prices for traveling and accommodations have not gone lower, and mortgage rates are not going lower right now either.

There continues to be speculation concerning oil prices and the demand curve. We continue to believe that oil prices will have to rise this year, given continued domestic demand and the additional demand created by the reopening in China.  I said earlier, travel demand is strong, with airline prices significantly elevated we believe that this will push more vacationers to travel by vehicle.

I am one of those. Over the weekend I was looking at flights and the costs are roughly 30% –  50% more than they were last year. When looking at this potential trip, I thought let me check to see just how much a car rental would be when my flight arrives at my destination.  There were none available through Enterprise.  As such, I plan to do this upcoming trip by vehicle. More vehicles on the road creates more demand for oil… which adds to Inflation, which keeps mortgage rates higher.

Despite the Fed’s language, the strong jobs growth in January, higher CPI for January the stock market has posted positive results for January and has held up well so far in February. I have heard it said several times over the past week or so, there seems to be disconnect with the Markets and the Fed’s position.

The markets seem to anticipate a goldilocks scenario for the economy unfolding. I am baffled by the disconnect and continue to think Mortgage Rates are not coming down soon.  That being said, once they come down, it should come down fast – we should be in a NORMAL market with Mortgage Rates at a low 5% APR to Mid- 4% APR by this time next year.

It seems like the stock market recovery from a terrible 2022, while welcomed, is too much too soon. We continue to think volatility is a staple of the markets through mid-year. The gains in the stock market in January, solid single digit returns, are representative of how we expect the stock market to perform in 2023. If that is the case, the best Mortgage Rates will likely be higher until at least Mid-May, and then hopefully we will have some relief.

As I said earlier, the Fed pushed Mortgage Rates to go too far, too quick – and I believe there’s still a chance after May to begin seeing a pullback from the Fed, with another opportunity to finish the year strong.  Time will tell, but for now, Mortgage Rates do not appear to be going much lower, anytime soon.

ANOTHER INTERESTING TWIST WITH Mortgage Rates this Spring?  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!!!

If you are looking for more information about Mortgage Rates, and what First Time Home Buyers can expect, please contact Steve and Eleanor Thorne 919 649 5058.