We expect mortgage rates to go down

Homebuyers may finally get a break this year, one expert says, as signs of fading inflation could send mortgage rates lower as soon as this month.

“Mortgage rates are down about a full percentage point since they peaked in November,” Melissa Cohn, vice president of real estate brokerage William Ravis, told Yahoo Finance Live. “I think we can expect mortgage rates to drop another quarter or even half a percent over the course of the next month.”

The average interest rate on a 30-year fixed mortgage has fallen by three-quarters of a percentage point since mid-November, according to Freddie Mac, It reached 6.33% this week. The drop in interest rates comes after a series of government reports showed signs that inflation in the US is finally starting to ease.

For some buyers, a lower mortgage rate means regaining purchasing power and getting back into the market.

“It’s the beginning of 2023. Everyone’s back to zero in terms of hitting their goals and everyone has to get loans in the door,” Cohn said. “Banks will sharpen their pens, they will narrow their profit margins, they will do everything they can to bring in volume, and lower rates will bring in more real estate transactions.”

Prices will not go down to 3%.

After nearly two years of record low mortgage rates, the 30-year-old’s rate rose last year at its fastest rate in more than 50 years. Most of the interest rate increases were the result of the Federal Reserve’s spirited fight against rampant consumer price growth.

However, signs of slowing inflation in recent months raise the possibility that the Fed will reconsider the pace of increases – giving mortgage rates some relief. New data this week showed that It has fallen to its lowest level in more than a year.

However, rates probably won’t return to levels seen during the early years of the pandemic.

“People can’t expect that we’re going to go back to a flat 3% rate for 30 years,” Cohn said. “Now this has happened because of COVID and the pandemic, and we don’t want to find ourselves in that situation again. If we can get interest rates back to where they were before COVID, call that anywhere from 3.75% to 4.5%, that would be a home run.” .

LOS ANGELES, CA - DECEMBER 19: A sign is placed in front of a new condominium for sale on December 19, 2022 in Los Angeles, California.  The National Association of Realtors will release its November data on existing home sales later this week after October saw existing home sales drop 28 percent from a year earlier.  (Photo by Mario Tama/Getty Images)

A sign is placed in front of a new condominium for sale on December 19, 2022 in Los Angeles, California. The National Association of Realtors will release its November data on existing home sales later this week after October saw existing home sales drop 28 percent from a year earlier. (Photo by Mario Tama/Getty Images)

How to get the best interest rate

The combination of rising rates, soaring home prices, and inflation was a huge blow to many first-time buyers last year, who were often priced out of the market.

While a lower price can greatly boost your buying power, there are other ways you can improve your chances of getting a lower price. According to Kuhn, the key is to start early by improving your credit score.

“Many of the better rate banks would like to see someone have three to four different active lines of business in their credit history,” she said, noting that buyers should have enough money for the down payment plus more. “We find a lot of first-time homebuyers are stuck because they may have had enough money for the down payment, but they didn’t factor in all the closing costs and what you need for reserves.”

Another way to lower your rate is to consider an adjustable rate mortgage or a government-backed home loan, which often carry lower interest rates and may be more accessible.

Finally, monitor the demand in your area. Sellers have been more open to offering incentivessuch as mortgage rate purchases, cash to closing costs, and even price reductions, so buyers who are still in the market should jump into these opportunities while they still can.

“When mortgage rates are higher, real estate prices tend to be a little lower,” Cohn said. “When interest rates come down… real estate prices will start to rise again and there will be more competition for homes in the market.”

Gabriella is a personal finance correspondent at Yahoo Finance. Follow her on Twitter @employee.

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