This has been a common question. Mortgage rates reached a peak of over 7% in late October of 2022, the highest level since 2002. This spike in rates came alongside the Federal Reserve's aggressive interest rate hikes aimed at curbing rampant inflation. However, there are signs that this October peak may prove to be the ceiling for mortgage rates in this cycle.

After hitting that October high point, rates on 30-year fixed mortgages have fallen back slightly and have stabilized. Rates seem to be hitting a hard resistance level every time they creep back up over 7%, before retreating again. This indicates that the peak of over 7% may be the upper limit of where rates can go in the current environment.

So what factors might prevent rates from resurging back to those November highs? For one, inflation appears to be cooling. The most recent CPI report from June showed inflation slowing again, down to 3.0% annually from its 9.1% peak last summer.

As inflation declines, this reduces the impetus for the Fed to continue aggressively hiking its benchmark interest rates. The Fed raised its federal funds rate by a .25% at its latest meeting in July. This was the eleventh rate hike since March of last year. After such a dramatic rise in their overnight lending rate, the Fed may now be at an end of this hiking cycle, as these rate hikes will continue to take time to slow consumer demand and move inflation towards their target of 2%. This would be another positive signal for mortgage rates.

Other economic factors that indicate stable or lower mortgage rates. Job growth is slowing across many industries, reducing pressure on wages and prices. Consumer spending has been dropping this year and expected to continue to decline through the end of the year.

Barring any new shocks, these trends point to inflation steadily decreasing through the remainder of 2023. As it does, mortgage rates are likely to stabilize, with a possibility of improving slightly by year's end.

Of course, there are four primary risks to this outlook. First, further government spending could add stimulus to the economy and re-ignite inflation. Second, restrictions on oil production that has caused a jump in oil prices recently could also drive gas prices and inflation higher again. The increasing amount of government debt that needs to be issued could weigh on rates. Recently reported third-quarter government spending requires an additional $250 billion. The final factor will be the Federal government fiscal budget for next year, to be issued by the end of September. Barring these outside factors, the current economic trajectory favors inflation moderating further and in turn may allow mortgage rates to ease lower.

For homebuyers and homeowners, this is good news, this means its unlikely mortgage rates will move higher from current levels in the months ahead. For those looking to buy a home or refinance, the high point may be behind us for mortgage rates.

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