Will mortgage rates change in October? Experts weigh in

Mortgage rate forecast for October

Die-hard home buyers will push ahead in October, propelled by life circumstances. Everyone else will be waiting for mortgage rates to fall, making homes more affordable. They’ll have to wait months, not weeks, for their turn. Mortgage rates reached their highest levels since 2000 in September, and they may rise further in October.

Although some sellers are lowering their asking prices, most would-be buyers will struggle to find suitable properties to make offers on.

Rates rose after the Fed meeting

On September 19 and 20, the Federal Reserve’s monetary policy committee met. Its most recent summary of economic projections included Fed members’ predictions for the direction of short-term interest rates over the next three years. Mortgage rates did not move much in the three weeks leading up to the Fed meeting as the market awaited the summary of economic projections to fall.

The mortgage market was taken aback by the projections. The Fed members indicated that they expect short-term interest rates to remain higher for longer than the mortgage market anticipated. Following the Fed meeting, mortgage rates caught up, with the 30-year fixed-rate home loan surpassing 7.25% for the first time since late 2000.

Home affordability is declining

Rising mortgage rates reduce home affordability, which has been decreasing since early 2021. The Federal Reserve Bank of Atlanta maintains a home affordability index that dates back to early 2006, and July’s affordability (the most recent available) was the lowest in the index’s 17-year-plus history. Mortgage rates have also risen since July, making a home even more difficult to afford.

Mortgage rates have risen for the fifth month in a row, raising mortgage payments for a given loan amount. According to Mike Simonsen, president of real estate analytics firm Altos Research, in a weekly commentary posted on YouTube, the impact on affordability has motivated nearly 40% of home sellers to reduce their initial asking prices. Around 30% of the homes on the market had price reductions in the spring, when mortgage rates were lower.

Home buyers may be relieved to learn that more sellers are lowering their asking prices. However, the scarcity of available properties continues to be a hindrance. According to the National Association of Realtors, there were 1.1 million homes for sale at the end of August, the most recent data available. In August 2019, 1.83 million homes were for sale in a more normal, pre-pandemic market.

Predictions of other forecasters

Mortgage rate forecasts for the final three months of the year differ between Fannie Mae and the Mortgage Bankers Association. Fannie Mae anticipates a slight increase at the end of the year, while the MBA anticipates a sharp decline, foreshadowing a recession in the first half of 2024. Both organizations issued forecasts prior to the September 19-20 Fed meeting, which hinted at a sustained level of higher interest rates.

How did mortgage rates fare in September?

I predicted at the end of August that mortgage rates would rise in September due to uncertainty about what the Federal Reserve would do.

Mortgage rates did rise following the Fed’s announcement on September 20. According to Freddie Mac, the average 30-year mortgage rate rose to 7.31% in the week ending September 28, the highest since the week ending December 15, 2000.