Yet if the Fed feels that the increase in interest rates isn’t doing enough to slow down inflation, it may decide to continue raising interest rates after its November meeting.

November Federal Reserve meeting

On November 2, 2022, the Federal Reserve raised interest rates by 75 basis points or three-quarters of one percent. This brings the current target range to 3.75% and 4%. The stock market and economists were expecting this level of increase, so it was not a shock to the system. However, Fed Chairman Jerome Powell did hint at the potential of slowing down the rate of future increases. Put simply, this means that smaller rate hikes could be a possibility, but a complete pausing of hikes is unlikely.

The only way the Fed will pause rate hikes or even consider lowering rates is if the economy shows definitive signs it’s being effected the way the Fed wants. The Fed’s goal is for inflation to return to an annual range between 2-3%.

How much higher will mortgage rates go?

The average interest rate for a 30-year fixed mortgage is 6.95%, and the average interest rate for a 15-year fixed mortgage is 6.29% as of the beginning of November 2022. Many economists believe mortgage rates will remain in the 7% range for the remainder of 2022.

However, this all depends on how aggressive the Federal Reserve is. If they slow down the pace of increases, 7% could be expected well into 2023. However, if they pause or lower rates, mortgage rates could fall below 7%. Finally, if they see signs inflation remains out of control and raises rates by 75 basis points or more, mortgages could exceed 8%.

What should home buyers do?

It’s difficult to time the market, but that’s especially true for the housing market. No one wants to feel like they paid too much for their home, yet buying a home is a major life decision that provides a feeling of security and stability.

Should potential homebuyers wait for housing prices to decline, or should they find the house that works for them and refinance when interest rates go lower? The final decision comes down to doing what makes sense for the homebuyer, but some buying strategies make it easier to know when to buy.

Set a Maximum Purchase Amount

Staying within your means is an essential strategy for keeping your payments affordable. You may have to buy less house or rent for longer, but you won’t become ‘house poor.’ The term ‘house poor’ refers to getting into a financial situation where the mortgage and property taxes eat up more of your income than is sustainable. Most estimates suggest not letting your mortgage exceed 28% of your gross monthly income. Don’t buy a house that’s out of comfortable financial reach.

Buy now, refinance later

Sometimes you need to buy, and the market conditions don’t matter. Go ahead and buy a home, provided you can afford the mortgage and related costs without straining your budget. Interest rates will eventually fall, and you can refinance the mortgage for a lower interest rate when that happens. Make sure to refinance to the shortest loan possible, otherwise, you risk paying more in interest over the life of the loan.

Wait until mortgage rates drop

This strategy is best for those in a stable living situation who can handle rent increases until the time is right to buy. Even though many see rent as throwing money away, it also means a roof over your head until you can plan your next best move. Keep an eye on interest rates and housing prices in the meantime, and be ready to move quickly when you find a house at a price you like and interest rates are lower.

Buy if You Plan to Stay

With the risk of falling housing prices, you want to ensure you will live in the house you buy for at least five years. This will lower the chance that you lose money if prices decline. If you are unsure you will own a home for that long, you are better off renting for now.

The bottom line

Overall, economists don’t believe there will be a radical move toward higher or lower mortgage rates soon. You can expect them to remain around 7% for the foreseeable future. Because of this, you need to take some time to decide if now is the right time for you to buy a home or if renting makes more sense.

What you should not do is wait for a housing crash. While there is always a chance of this happening, the odds are slim. 2008 was the only time that housing prices fell significantly. In all other recessions, home price gains slowed but they did continue upward. Of course, your area could experience a slight decline while other parts of the nation see increases. However, you most likely won’t see a major decrease in prices.

While you’re waiting for just the right house to come around, it’s good to stay in the other markets, as long as you stay relatively liquid. Q.ai takes the guesswork out of investing.

Our artificial intelligence scours the markets for the best investments for all manner of risk tolerances and economic situations. Then, it bundles them up in handy Investment Kits that make investing simple and – dare we say it – fun.

Download Q.ai today for access to AI-powered investment strategies. When you deposit $100, we’ll add an additional $100 to your account.