Earlier this week I had the opportunity to hear Barry Habib provide his outlook on the housing market and mortgage rates in the first half of 2023.

Barry is an American entrepreneur and frequent media resource for his mortgage and housing expertise. He is an Amazon #1 bestselling author for his book “Money in the Streets, and is a three-time Crystal Ball Award for the most accurate Real Estate forecasts out of 150 of the top economists in the US. You can follow Barry at https://mbshighway.com/

Barry explains why Mortgage Rates will be in the 5% range in the first half of 2023 and why Housing prices will remain strong.

Mortgage rates are impacted by Inflation and not Federal Interest rates. In November the Fed hiked interest rates (business use to borrow) by .75%. However, mortgage rates actually dropped by .75% in November, because inflation was down.

In the illustration below, Barry is tracking mortgage rates in blue against Consumer Price Index (CPI) in pink. Barry illustrates that for the last 4 years, Mortgage rates and Inflation track in a predictable manner. He also illustrates the period when the Fed artificially kept interest rates (businesses use to borrow) artificially at 3% even though inflation was beginning to creep up. The Fed should have been increasing rates in the first half of 2021 and were 6 or more months late in trying to slow inflation through interest rate hikes.

The rate of Inflation will continue to come down. 

In the chart below, Barry illustrates that Inflation is calculated by aggregating 12 monthly inflation measures. As such, the aggregate inflation index for December 2022 (reported in January) will be lower if the metric for Dec 2022 is lower than Dec 2021 that rolls off of .6% and the aggregate inflation index for Jan lower if the monthly metric for Jan 2023 is lower than Jan 2022 that rolls off, also of .6%.

Finally, Barry illustrates how 30 year Mortgage Rates have historically moved up and down with the 10 Year Treasury rate. The red line illustrates the historical spread between the two at 2%. We are currently seeing an unusual high spread of 3% or 300 basis points, which suggests Mortgage Rates are likely to drop. When 10 Year Treasury drops to 3%, which Barry believes will occur, Mortgage Rates will be 5%.

Housing Prices, like any other industry is a function of supply and demand. Inventory (supply) is still a fraction of what it was in the housing price “bubble” of 2007. Barry believes when interest rates drop to 5%, more buyers will come back to the market, helping housing to retain or increase their value.