Why Are Mortgage Rates Going Up In November 2022?

Key Takeaways

• Average mortgage rate currently stands at 6.95% for a 30-year loan and 6.29% for a 15-year loan.
• Experts believe mortgage rates will be contained to a narrow window as we move into 2023.
• If you are considering buying a home, make certain you can afford it, and plan to stay in the house so you don’t lose money.

Many people are sitting on the sidelines wondering if now is the time to buy a house. They want to know if mortgage rates will continue to climb higher. Here is where mortgage rates are today and where experts believe they will be heading in the months ahead.

Higher rates in response to high inflation

Inflation escalated in early 2022, with gasoline prices spiking, housing prices reaching unprecedented levels, and a sharp increase in grocery prices. Consumers bought less and dug deeper into their pockets to pay for their daily needs.

The truth is the Federal Reserve saw higher inflation back in 2021. However, they thought the inflationary environment was temporary due primarily to supply chain issues caused by the pandemic. While the disruptions in the supply chain were an important factor, it was not the only one.

Government spending and the Russia-Ukraine conflict also played a role. Add in the fact that China continues to lock down due to its zero-COVID policy, and inflation is here to stay. In response, the Federal Reserve started a series of interest rate hikes to combat inflation and reduce the amount of money circulating in the economy.

On the surface, raising interest rates to draw cash out of the economy seems like an odd move. It only serves to cause financial pain for consumers and businesses alike. However, inflation would have only worsened if the Federal Reserve had not started raising interest rates. It would have made it even harder for people to buy necessary and discretionary goods. Drawing money out of the economy puts pressure on manufacturers to reduce prices and restore affordability.

With that said, the Federal Reserve is running the risk of creating a recessionary environment, as keeping interest rates too high for too long can lead to job losses. This could cause even more pain, as an increase in unemployment may lead to a significant drop in housing prices and defaults on loans like auto loans and mortgages.

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.

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.

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