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Where are Interest Rates Going?

In essence, industry experts project them to go higher than 4/20/23 for 2023, but down in 2024 & beyond, according to mortgage industry experts & the FED. 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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Inflation Rate

Where Interest Rates are Going

2023 Projections: Higher in 2023 vs 4/20/23

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Go here for the latest 90 day projection:

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Interest rates are projected to fall with FED projected to lower rates in 2024, 2025, and beyond vs 2023 levels. Until inflation is under control & closer to target levels (2%) I suspect that we'll continue to see rate levels that aren't close to the 3% we saw in recent history. The average mortgage rates are 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")

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Image courtesy Federal Reserve

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 throughout the US. Some markets are faring much better than others though, especially those markets that experienced rapid recent appreciation. 

If you've been on the fence about a purchase, and plan to use a mortgage, I recommend being patient about purchasing right now and not rushing it. 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 since the prices are likely to be lower at the end of 2023 than they are in mid-2023.

If you're selling, you're likely better off selling in mid-2023 than selling at the end of 2023 when prices will likely be 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 a lower value in cash, you're better off selling when the market is high and buying immediately or even better, if an extra few moves wouldn't be too costly, renting until purchasing in the Winter (i.e. December) when prices are lower, though keep in mind that inventory is also lower then typically though demand is even 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 is a good idea 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, 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.

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