August saw mortgage rates rise from 5.125% to 5.87%. This was in response to Fed Chair Jackson Powell’s speech from the annual Jackson Hole central banking symposium, where he raised expectations that the Fed will increase the federal funds rate another 75 basis points on September 21.

Powell made very clear that the Fed’s “overarching focus right now is to bring inflation back down to our 2 percent goal”. He acknowledged that the Fed’s actions would cause “pain to households and businesses” but was a necessary step in controlling price stability.

The Federal Reserve does not directly control mortgage rates, however its economic outlook affects investors who do determine rates. While Powell’s goal is to cool the housing market, his message on August 26th had a greater effect on the stock market than it did on mortgage rates. Mortgage investors seem convinced that the Fed will cut its rates next year, as the economy continues to slow or enters a recession.

Many experts believe that mortgage rates peaked when they hit 6.06% on June 14. Freddie Mac, in its July quarterly forecast, predicts that rates on 30-year fixed loans will average 5.0% for 2022 and 5.1% for 2023.

What can we expect in the near future? According to Vince Glakas, mortgage broker with Motto Mortgage, “We can expect rates to plateau until the end of September, when the Fed announces its hike.” He anticipates the market will behave as it did in early July, when 30-year fixed rate averages barely moved in expectation of the July 26-27 Federal Reserve meeting.

With rates increasing from 3.8% in Q1, and housing prices continuing to rise, lenders are offering new programs to help buyers afford a home purchase. Loans with 3% down are more common. Home Equity Lines of Credit, which were scarce due to the economic uncertainty caused by COVID, are once again available. Also 2-1 Buydown programs have become an attractive option, allowing buyers to pay a lower interest rate for the first year of their loan, a somewhat higher rate for the second year, and the full rate the third year and beyond. This program is ideal for buyers who expect an increase in income, or are willing to bet that mortgage rates will go down in the next few years and can refinance.

Buying a new home has become challenging, but with the guidance of an experienced agent, and the availability of strategic financing options, even first-time buyers can navigate this changing and challenging market. If you would like to learn more about the real estate market or financing, give us a call today!