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Where are Interest Rates Going?

In essence, up, to curb historic high inflation. Below I'll share where interest rates have gone in the distant and recent past, where they are projected to go, and what that means for prospective purchasers.

Where Interest Rates Have Gone

In my Market Projections Video on December 7th of 2021, I mentioned how home prices in SE VA were projected to go up and how interest rates were projected to go up. 

Since that time, home prices did go up in 2022 & mortgage interest rates went up by more than 100%

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When looking in the past decade or so the current rates seem high.

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Though when you go further back, not so much:

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How Inflation Impacts Interest Rates

Recent rate hikes of the Fed, which indirectly impact mortgage rates, are meant to curb historic high inflation, the highest rates we've seen in over 25 years, but again, not the highest in history:

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Where Interest Rates are Going

Interest rates are projected to rise further with FED hikes projected in 2023 (median projection on December 14th 2022 of 5.1 for 2023). Until inflation is under control & closer to target levels (2%) I suspect that we'll continue to see FED rate hikes in 2023 which are one of the top macro-level contributors to mortgage rates, with the average mortgage rates typically 1%-4% above the FED rate. 

Below are the median projections of the Federal funds rate by the Federal Open Market Committee as of December 2022 until 2025. (See the latest here after locating most recent month's "Projection Materials HTML")


Below is a comparison of the FED rate vs mortgage interest rates:

What that Means

With interest rates so rapidly increasing, we're starting to see:

1. Less buyer interest in new financing & new purchases

2. More and more assumptions. 

Some suspect some huge market crash, but:

a. We're in a housing shortage for both purchasers and renters,

b. Buyers have a lot more equity in their homes than in 2008

c. We have more stringent lender guidelines in place since 2008

d. As stated above, we have rapid inflation rates that are pushing up the housing market

So with those and other factors combined, I'm not anticipating that. 

If you've been on the fence about a purchase, and plan to use a mortgage, I recommend buying sooner rather than later, all other factors the same, unless considering buying at the end of 2023 or in 2024. If you're purchasing in cash, when you should buy depends on the timing of the market, as discussed on this page, all other factors the same.

If you're buying in cash, if you're able to wait, you're likely better off purchasing at the end of 2023 than in early 2022 because even if the rates are higher at the end of 2023 than they are in the beginning of 2023, the prices are likely to be lower at the end of 2023 than they are at the beginning of 2023.

If you're selling, you're likely better off selling now than selling at the end of 2023 when rates may be higher than they are now and with prices lower.

That said, things change if you're selling and buying around the same time.

If selling something of high value and buying in cash at lower value in cash, you're better off selling now and buying immediately or even better, if an extra few moves wouldn't be too costly, renting for a year, then purchasing when prices are lower.

A buyer recently shared with me that they planned to take time to improve their credit prior to purchasing. Some buyers may wish to acquire a larger down payment prior to purchasing.

In a typical market, each are good ideas for many. For some buyers, taking care of some things on their credit or increasing their cash to close prior to purchase is a must. If you haven't paid taxes in years, that also will need to be taken care of prior to purchasing. You shouldn't even seek prequalification prior to doing that. If you don't have any savings, likewise, purchasing could be quite difficult prior to securing more funds.

In today's interest rate environment (at least, after the upcoming FED meeting, since a rate lock prior to the FED meeting could yield solid dividends by comparison), if you have a 720 and are trying to shift your credit score to a 740 prior to purchasing, if it can be done quickly (i.e. <1 month), you may want to do that. There are some options to rapidly increase your credit score that can take a month or less. For instance, decreasing utilization on credit cards from 105% to 0% can happen within 1 month for some buyers, yielding substantially better terms for rates and mortgage insurance if applicable. In another example, if you have a paid medical collection(s) from years ago, those can sometimes be removed in around a month if you go through the right channels, & I've seen where a small step like that increased scores by around 100 points in around a month.

Conversely, if you are able to acquire a mortgage for a home with your current credit/cash to close, if substantially increasing your cash to close &/or credit scores would take 6 months or a year, whatever interest rate reduction you may have been thinking about achieving may be taken away entirely, and you may be worse off than before, due to increasing market-wide rates, so that time and energy could occur for a net loss in terms of your purchase.

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