Did rising mortgage rates cause you to put your home-buying plans on hold?

If so, you’re in luck, because it looks as though lower mortgage rates are on the horizon.

How can that be, you ask, didn’t the Federal Reserve just raise rates again at their last meeting?

That they did, and while car loans, credit cards. personal loans, home equity lines of credit, etc. will all be impacted, inflation is the real enemy of long-term mortgage rates and as inflation moves, so does mortgage rates.

Watch the following video, or continue reading below, as I share the latest projections on where mortgage rates are heading and show you home mortgage rates impact home affordability;

Inflation and Mortgage Rates

How inflation moves, mortgage rates follow.

Here is a graph that shows the changes in the annual inflation rate going back to March 2020;

The pattern of this graph is very similar to what we've seen mortgage rates do over the past 18 months.

At the beginning of 2022, mortgage rates were 3% before peaking at over 7% in October 2022. Since that time, mortgage rates have been slowly declining, currently bouncing around 6.5%, due to uncertainty about the economy and the current debt ceiling negotiations.

Here is what it looks like when you map the 30-year mortgage rate and inflation together;

As you can see on the far right side of the graph, the inflation line has been trending down and is now lower than the mortgage rate line (which is usually above) telling us that lower mortgage rates are on the horizon.

Lawrence Yun, Chief Economist of the National Association of Realtors (NAR) recently said;

Mortgage rates are likely to descend lower later in the year as consumer price inflation calms down….

Lower Mortgage Rates Impact on Affordability

I’m sure it will come as no surprise to anyone that housing affordability today is lower than it has been since 1990.

The three elements of housing affordability are home prices, wages, and mortgage rates. Positive improvement in any of those areas will benefit housing affordability.

Wages

While there is uncertainty about the future of the economy, unemployment is at a 50-year low, April job growth was stronger than expected, and wages are continuing to rise.

Home Prices

Talk of a housing market crash has been around since the onset of the pandemic. It hasn’t happened, and there are no leading indicators to suggest that one will happen in the coming year. Home prices in Frisco and the surrounding area did decline, but it appears as though those declines are now behind us.

I covered this in detail in my May 2023 Housing Market Update if you would like more information about this.

Currently, there is a large imbalance between housing supply and demand, not just here in Frisco, but across the country. For home prices to drop we would need a significant decline in demand, which hasn’t happened even with higher mortgage rates, or a large increase in supply, which isn’t looking likely.

For perspective, there are currently 202 homes for sale in Frisco. At this time in 2019, there were 829 homes for sale, and in 2018 there were 1,205.

Mortgage Rates

Declining mortgage rates appear to be the most likely source of improved affordability in the year ahead. Lower mortgage rates can significantly impact your monthly mortgage payment. The following chart shows the savings of a 1% decline in mortgage rates, from 7% to 6%, for different loan amounts.

Just note that most of the experts are expecting mortgage rates to get back closer to 5% in the next year.

Bottom Line

Only you can make the decision that’s best for you and your family. Remember, whether you choose to rent or buy, you’re making a mortgage payment - is it yours, or your landlord’s?

That’s not to say now is the right time for everyone to buy a home, because it definitely isn’t, but with the median rent in Frisco now standing at $3,150/month, you might want to make sure you’ve fully explored all options.

If you have questions or a specific situation you’d like to discuss in more detail, I invite you to Schedule a Call with me. I’d be more than happy to talk to you and make sure you have the information needed to make the best decision for you.

The best way to stay up to date on what’s happening in our local real estate market is with my Weekly Market Report. Check out the latest edition and subscribe today.

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