Mortgages are mostly priced off of long-term rates, so the shape of the yield curve also matters, Shampa Bhattacharya, director at Fitch Ratings, said. The Fed’s latest decision to raise rates at a slower pace could be an “incremental positive for mortgage markets as the long-term rates will continue to drop.”

The 30-year mortgage rates peaked in November 2022 at over 7%, but have since trended down to 6.13% — following the moves in the longer end of the yield curve from over 4% in October and November to 3.5% currently, Bhattacharya said.  

The 10-year Treasury note, which dictates mortgage rate movements, dropped to 3.39% on Wednesday. The rate was 3.43% in mid-January when the Bureau of Labor Statistics released the Consumer Price Index for December, which showed a decline for six consecutive months.

Softer inflation recently is what led to a softer rate increase, Lawrence Yun, chief economist and senior vice president of research at National Association of Realtors said, noting that the central bank is showing its willingness to adjust policy based on data.

While Fed chairman Jerome Powell said in a press conference that he doesn’t “see us cutting rates this year,” Yun remained hopeful that a rate cut could come by the end of 2023. 

“As inflation calms further from rising apartment vacancies in upcoming months, the Fed will adjust to a no-rate increase by the middle of the year and even a rate cut by December. That is good news for mortgage rates, which will possibly fall to 5.5% by the year end,” Yun said.

The 30-year fixed rate was at 6.16% on Tuesday, a decline from 6.5% about a month ago, according to the Optimal Blue data at HousingWire’s Mortgage Rates Center. Rates are still nearly 60% higher than they were one year ago at 3.8% in February 2022. 

There are concerns, however, that the rising interest rates will lead to many homeownership dreams deferred, Justin Barry, partner at law firm Morris, Manning & Martin, noted.

“Rising interest rates and elevated mortgage rates present another homeownership hurdle for the current renter pool,” Barry said. 

Opportunity for buyers

For buyers looking at a growing number of homes for sale and retreating prices across the housing market, there is hope that this year will offer more opportunities.

“Median list prices have dropped 11% from their June 2022 peaks,” George Ratiu, manager of economic research at Realtor.com, said.

“For the buyer of a median-priced home, these lower prices translate into a $9,800 savings on a 20% down payment. This is a welcome shift for households still feeling the squeeze of higher prices and elevated borrowing costs,” he added.

Existing home sales declined over the past 12 months, dropping from an annualized rate of 6.5 million homes in January 2022 to a little more than 4 million in December. That marks the slowest pace since 2010. 

U.S. home prices have dropped for five straight months starting last November, according to this week’s S&P CoreLogic Case-Shiller National Home Price Index.

Mortgage loan originators don’t expect the Fed’s rate hike to impact buyers as much. First-time buyers in particular have become more realistic about the higher-rate environment and are looking to enter the market, LOs said. 

“I think you’re going to see a much bigger push for first-time homebuyers more than anything,” Ben Cohen, Guaranteed Rate’s managing director, said in a recent interview with HousingWire. 

“Rents are more expensive. Their landlords are calling them saying, ‘I’m jacking your $2,500 rent up to $3,000.’ They’ll just go buy a home,” Cohen said. 

Andrew Marquis, regional vice president at CrossCountry Mortgage, also noted that he’s doing twice as many pre-approvals that he was doing in the fall due to the decline in rates.

“We have a lot of clients reaching out for pre-approvals. They’re looking for fully underwritten approvals so that they can potentially waive contingencies again,” Marquis said.