Where Are Interest Rates Heading?

The Federal Reserve raised interest rates for the fifth time in 2022 at their September 21st meeting. The Fed continues to be aggressive in raising rates with a 0.75% rate hike this time around to put the federal funds target rate in the 3% to 3.25% range.

If you’re looking to buy a home in Huntsville, AL, you might be wondering how that’s going to impact real estate interest rates over the coming months. As a quick reminder, the Fed funds rate does not directly affect the mortgage rate, but it does have a major impact. 

When Will The Fed Raise Interest Rates Again? 

The Fed is predicting that they're going to continue to increase interest rates at their two remaining meetings in 2022 with an end target rate in 2023 of 4.6%. Most of the smart money was predicting rates would begin to fall in 2023, now predictions are that rates will likely not begin decreasing until the 2024 time frame.

Quantitative Tightening by the Fed

The Fed fund rates are definitely a part of the equation of why 15-year and 30-year interest rates are rising right now. The other part of the equation that's not getting nearly as much press as the Fed funds rate is the fact that the Fed is also doing what's called quantitative tightening.

Whereas quantitative easing is when they're buying bonds to artificially deflate the interest rates so that interest rates are lower, quantitative tightening is when they're becoming sellers of bonds. They're letting these bonds fall off and go back into the open market so there's more supply out in the marketplace which is pushing up the interest rates. The Fed is looking at doing $95 billion worth of quantitative tightening right now.

What to Expect with Interest Rates in 2023

As mentioned earlier, rates are expected to stay elevated throughout 2023. Fannie Mae is also predicting that rates will stay high throughout 2023 before potentially beginning to cool off in 2024.

How Do 2023 Interest Rates Affect Homebuyers?

We're likely going to start to see more of a balanced market going forward in the next 12 months. A balanced market is 4 to 6 months' worth of supply. Since we're likely to see a balanced market, you’ll potentially be able to negotiate more on a home than we've seen in previous markets in previous years. So what a lot of people are doing is marrying the home and dating the rate. Over the next year, I'd be looking at finding the home that you're interested in, getting it for the right price, and then looking to refinance as rates are likely to begin to soften in the 2024 market.


Posted by Matt Curtis on


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