Mortgage interest rates continue to be high due to the hottest inflation readings in over 40 years. The effects of the Federal Reserve’s rate hikes are not yet making a significant impact on reducing inflation, but there is a normal delay from when the Fed hikes their target rate, the Fed Funds, to when the rate hikes impact inflation. We are first seeing the impact of the Fed rate hikes in the GDP numbers with the last two quarters showing negative GDP. The accepted definition of an economic recession in the U.S. is two consecutive months of negative GDP, which we have achieved so far this year.
2022 Recession in Hindsight
Next year, we will likely see economists agree that we were in a recession in 2022. The markets are anticipating additional Fed rate hikes in November and December of this year, maybe an additional .75% hike at each of the next two Fed meetings. If so, that would mean the Fed will have hiked the Fed Funds rate a total of 5% in this year alone.
Inflation Relief on the Way
Very soon, we will see the effects of all these rate hikes and inflation should start to head back down again, towards the Fed’s 2% target. I think we will start to see inflation relief beginning in November 2022 and continuing into 2023 with mortgage rates following the downward trend. The Fed rate hikes that will reduce inflation and the slowing in the economy, also created by these rate hikes, will push more money into the bond market, which sets the basis of mortgage interest rates. Reduced inflation makes purchasing treasury bonds more attractive to investors, as does a recession, since bonds are a safe haven for investor dollars when the economy slows and stocks take a hit.
Strong Housing Market Coming Back
Mortgage rates should start falling in December of 2022 with my prediction that June of 2023 will see mortgage rates down over 2% from where they are today. We will likely see another small run on refinances in 2023, which will result in refinancing most of the loans writte