The BIGGEST question that I get asked is, when do you think RATES will come down? Higher rates as we know affect everything in life because everything that requires debt costs more and that cost gets passed down to the consumer. 70% of the economy in the US is consumption, so basically, we are ALL feeling the pain. This BLOG is a bit longer but much to understand on how we can predict lower rates and when.
We know inflation, growth, consumer spending, wage growth, and job opening and most of the data shows things are slowing down and that the high interest rates are doing their job. The reason I am focusing on inflation, jobs, growth, and employment data is because that is what the FED is focusing on and wants to see pull back for them to change course and STOP raising rates and ultimately CUT rates. The FED is not focusing on inflation, the stock market, housing, and the list goes on to cut rates because you can see that when Powell talks and in his actions. The housing market is so screwed up with HIGH rates, NO inventory, and affordable at all-time HIGHS. The only reason the housing market has NOT crashed is because everyone has low rates and low payments, so they are NOT moving, and inventory is nonexistent.
There are lots of opinions on where rates will be in the next 12 to 24 months. So, if you want an educated guess, I will give you one, but in today’s world, I feel like everyone is guessing. If everything is cooling off, the savings rate goes from 35% to 5%, student payments start back up in 1-month, the average person is being stretched with the cost of life, employment slowing, and the FED raising rates super-fast it seems to me we are at the end of this bullish FED. I think we will see continued slowing over the second half of 2023 and with that data that will start to make the FED grow uncomfortable. 2023 is the year will the FED is going to push hard with rates and get all their work done to calm down the economy so they can set the stage in 2024 to start cutting rates and that will start to bring rates down. What perfect timing, 2024 is an election year and the FED will start to feel the pressure from the politicians to cut rates and make sure the economy is doing well so Americans feel good about their finances and economy in 2024.
Let’s look at some data charts below. Monthly wage growth is TOP on the list for the FED, with inflation rising wage growth must remain strong to combat the higher cost of goods. With this softening, it means the consumer will NOT be able to keep up. Monthly payroll change is trending down, and this is what the FED needs to see. Interest rate forecast from the FED where they see rates going in the future. FED’s fund rate expectation compared to Morning Star’s estimate. US real GDP growth is what the FEDs are watching for growth, and they need to see this coming down which it is. US inflation rate PCE, what the FED looks at for inflation rate, clearly this is coming down.
When you look at all the data below it is clear that the FED is getting its way and the data is showing a slowing trend. Will the FEDs do one more rate hike in September? Probably, but no one will be surprised if they do on September 20th. They want to stay firm and complete their job, their job is to make sure that inflation, job growth, wage growth, and the overall economy are back to levels they feel comfortable with and then they can take their foot off the gas. They will most likely leave rates at this level until they feel it is time to change courses.
Today, the 30-year fixed to for a conforming loan is sitting at 7%, and the 10-year treasury sits around 4.181%. By this time next year, if we see the FED gets its way, they get a soft landing, rates will be in MY OPINION around 5.25% to 5.5% and the 10-year treasury will be around 3.25%. If the economy starts to get much worse faster and it looks like they must land the plane faster, we could see rates come down much earlier. Once we see rates come down and stay down, I would not be surprised if we live around a 10-year treasury ranging from 2.75% to 3.25% and mortgage rates live around 4.75% to 5.25% for conventional mortgages. Keep in mind the spread on ALL rates is much higher and that number will come down and that is why I am predicting rates to stabilize lower.
So let’s shoot from the hip and show you ALL some rate stuff that could happen over the next 12 months. This is just me giving you an educated guess and I could be wrong. Time always tells but I am trying to give you something to chew on 😊
- FHA/VA – 4% to 4.5%
- Conventional – 4.75% to 5.25%
- Jumbo – 4.75% to 5.25%
- ARM’s – 4% to 4.5%
- NON- QM – 5.5% to 6.5%
- Investment property loans – 5.5% to 6.0%