With the 2022 mortgage rate peaking at 7.12 percent and inflation at 6.5 percent by the end of December 2022, it was a tumultuous economic year.
The hot housing market slowed down in many markets primarily due to high mortgage rates. But what will 2023 bring for mortgage rates? Is there relief on the way?
Inflation Contributes to Mortgage Rates
The Federal Reserve sets a target interest rate assessed on the bank-to-bank level. This is the rate banks charge each other for loans or borrowed money. This charge is passed on to the consumer.
The goal is to limit monies that can be borrowed so that a hot economy can cool down. The goal inflation rate is 2 percent. But in 2022, the average inflation rate was 8.3. This pushed up the average mortgage rate to 4.87. In contrast, the average inflation rate in 2020 was 1.2 and the average mortgage rate was 3.11….