Mortgage Rates Have Room to Rise in January, Prior to Fed Meeting

This article was first published on NerdWallet.com.

January mortgage rates forecast

Mortgage rates might rise modestly in January, reaching their 2023 peak before settling lower the rest of the year.

If mortgage rates do rise in January, they will do so in response to two things:

• A stubbornly high inflation rate.
• Uncertainty about what the Federal Reserve will do at its next monetary policy meeting, which ends Feb. 1.

As inflation falls, so should mortgage rates

This round of inflation has affected home buyers in two ways. First, home prices went up at an alarming speed. Then, mortgage rates zoomed to 20-year highs. The Federal Reserve's fingerprints are all over both events. 

Fast-rising home prices can be traced to the central bank's response to the start of the COVID-19 pandemic, when it slashed a key short-term interest rate to near zero percent in March 2020. The Fed also began buying mortgage-backed securities to push mortgage rates down and prevent a potential housing market crash resulting from widespread pandemic-related job losses. Far from crashing, the housing market shifted into overdrive, as home buyers responded...