Mortgage Rates Have Dropped for 5 Straight Weeks. Will That Trend Continue?

If rates keep dropping, home buyers could finally enjoy some relief.

There's a reason 2022 has been such a tough year for home buyers. Not only have property values been elevated on a national level, but mortgage rates have jumped substantially since the start of the year. And at one point not so long ago, the average 30-year mortgage rate was above 7%.

But in recent weeks, mortgage rates have stopped climbing. In fact, mortgage rates have now actually fallen for five weeks in a row. And for the week ending Dec. 15, the average 30-year fixed loan rate was 6.31%, according to Freddie Mac.

That's still twice as high as what that same mortgage product cost a year ago. But it's a notable reprieve from 7%.

If you're looking to buy a home, you may be wondering whether this trend of declining mortgage rates is going to continue well into 2023. The answer? We really don't know.

Mortgage rates could stop falling and start rising

The fact that mortgage rates have dipped for five consecutive weeks is encouraging. But we could see that trend reverse in short order.

The reason? On Dec. 14, the Federal Reserve announced a 0.50% interest rate hike -- a smaller increase than it implemented at its last bunch of meetings, but a pretty aggressive hike nonetheless.

The Fed is on a mission to slow the pace of inflation, and it plans to keep raising interest rates as needed until the general cost of living starts to drop. Now, the Fed doesn't set mortgage rates, or any consumer borrowing rates, for that matter. Rather, it's in charge of establishing the federal funds rate, which is what banks charge each other for short-term borrowing purposes.

But when the federal funds rate rises, it tends to indirectly drive up the cost of consumer borrowing. And in light of this most recent rate hike announcement, it wouldn't be surprising to see mortgage rates stop falling and begin rising again.

Should you rush to sign a mortgage before rates climb?

You may be eager to capitalize on today's slightly lower mortgage rates. But remember, home prices are still up on a national scale. And even if you manage to lock in a mortgage at closer to 6% than 7%, you might still run into issues with affordability.

If you happen to find a home you like in the near term and can lock in a more competitive mortgage rate than what you would've been looking at five weeks ago, by all means, do it -- as long as you've crunched the numbers and are sure you can swing your housing costs. As a general rule, your monthly housing expenses should not exceed 30% of your take-home pay. And those expenses should include not just your mortgage, but also, your property taxes, homeowners insurance, and any other monthly bills you're on the hook for.

Signing a mortgage while rates are slightly lower might help you stay within that limit. But if buying a home isn't in the cards at this moment, don't sweat it.

We don't know what 2023 has in store for mortgage rates, but there's a chance they could start to creep down to more comfortable levels during the second half of the year. So even if the most recent Federal Reserve rate hike drives borrowing rates back upward, that doesn't automatically mean you're doomed to get stuck with a higher rate.