Homebuyers could finally take a break this year, an expert says, as signs of slowing inflation could lower mortgage rates as early as this month.
“Mortgage rates are down almost a full percentage point since their November peak,” Melissa Cohn, vice president of William Raveis, a real estate brokerage firm, told Yahoo Finance Live (video above). “I think we can expect mortgage rates to go down another quarter or even half a percent over the course of the next month.”
The average interest rate on the 30-year fixed-rate mortgage has fallen three-quarters of a percentage point since mid-November, to hit 6.33% this week, according to Freddie Mac. The rate cut comes after a series of government reports showed signs that US inflation was finally cooling.
For some buyers, a fall in mortgage rates means regaining purchasing power and re-entering the market.
“It’s early 2023. Everyone’s back to zero in terms of meeting their goals and everyone has to put credit in the door,” Cohn said. “Banks will sharpen their pencils, they will tighten margins and do whatever it takes to get volume in the door, and lower interest rates will bring more real estate transactions.”
Interest rates will not go down to 3%
After about two years of record-low mortgage rates, the 30-year interest rate rose last year at its fastest pace in over 50 years. Most of the rate hikes came as the Federal Reserve fought relentlessly against unbridled consumer price growth.
However, signs of cooling in inflation in recent months increase the likelihood that the Fed will reconsider its rate hike pace – bringing some relief to mortgage rates. This week, new data showed that consumer price growth fell to its lowest level in over a year.
Still, rates are unlikely to return to levels seen in the early years of the pandemic.
“People can’t expect us to go back to a 30-year fixed rate of 3%,” Cohn said. “Well that happened because of COVID and the pandemic and we don’t want to find ourselves in that position again. If we can get interest rates back to pre-COVID levels, let’s call that somewhere between 3.75% and 4.5%, that would be a home run.”
The story goes on
A sign is posted in front of new condos for sale December 19, 2022 in Los Angeles, California. The National Association of Realtors is due to release its November existing home sales data later this week, after October existing home sales fell 28 percent from a year earlier. (Photo by Mario Tama/Getty Images)
This is how you get the best interest rate
The combination of higher interest rates, soaring home prices, and inflation over the past year has dealt a severe blow to many first-time buyers, who have often been forced out of the market.
While a price decline can significantly increase your buying power, there are other ways you can improve your chances of seeing a lower price. According to Cohn, the key is to start improving your credit score early.
“A lot of the better interest banks want someone to have three to four different active trade lines in their credit history,” she said, noting that buyers should have enough money for the down payment plus the extra. “We find that many first-time homebuyers get stuck because they may have enough money for the down payment but haven’t accounted for all of the closing costs and required savings.”
Another way to lower your interest rate is to consider an adjustable rate mortgage or government-backed home loan, which often have lower interest rates and are more accessible.
Finally, keep an eye on demand in your area. Sellers were more open to offering incentives such as B. Mortgage rate buybacks, cash for closing costs, and even discounts, so buyers who are still in the market should take advantage of these opportunities while they still can.
“When mortgage rates are higher, home prices tend to be a little lower,” Cohn said. “If interest rates go down … house prices will go up again and there will be more competition for the houses on the market.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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