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‘We can expect mortgage rates to fall’


Homebuyers may finally get a break this year, as signs of easing inflation could cause mortgage rates to drop as soon as this month, one expert said.

“Mortgage rates have fallen by almost a percentage point since peaking in November,” Melissa Cohn, vice president of William Raveis, a real estate brokerage, told Yahoo Finance Live (video above. ). “I think we can expect mortgage rates to drop for another quarter or even drop as much as half a percent throughout the next month.”

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

For some buyers, lowering mortgage rates means regaining purchasing power and re-entering the market.

“It’s early 2023,” Cohn said. Everyone is back to zero when their goals are met, and everyone has to bring loans in the door. “Banks will sharpen their pencils, they will tighten their margins and do whatever they can to bring in transaction volume and lower interest rates will bring in more real estate transactions.”

Interest rates won’t drop to 3%

After about two years of record low mortgage rates, 30-year rates last year rose at their fastest rate in more than 50 years. Most interest rate hikes are due to the Federal Reserve’s zealous fight against rampant consumer price growth.

However, signs of cooling inflation in recent months are raising the possibility that the Fed will reconsider the pace of rate hikes – causing mortgage rates to drop slightly. This week new data shows that fell to its lowest level in more than a year.

However, rates will likely not return to levels seen in the early years of the pandemic.

“People can’t expect that we’re going back to a fixed rate of 3% in 30 years,” Cohn said. “Now that has happened due to COVID and the pandemic, and we don’t want to find ourselves in that position again. If we can get rates back to pre-COVID levels, let’s call it anything between 3.75% and 4.5%, that would be a significant step forward.”

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

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

How to get the best interest rate

The combination of higher interest rates, rising home prices and inflation was a blow to many first-time buyers last year, who are often undervalued out of the market.

While lowering interest rates can dramatically increase your purchasing power, there are other ways you can improve your chances of winning a lower interest rate. According to Cohn, it’s important to start early by improving your credit score.

“Many banks with better interest rates will want to see someone with three to four different active transactions in their credit history,” she said, noting that buyers should have enough funds to pay off the loan. prepayment plus. “We see a lot of first-time homebuyers struggling because they can’t afford to pay upfront, but that doesn’t take into account all the closing costs and what you need to have in reserve.”

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

Finally, keep an eye on demand in your area. Sellers are more open to offering incentivessuch as reduced mortgage rates, cash on closing costs and even discounts, so buyers who are still in the market should take advantage of those opportunities while they still can.

“When mortgage rates are higher, property prices tend to be a bit softer,” says Cohn. “As interest rates go down… property prices will start to rise again and there will be more competition for homes on the market.”

Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.

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