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Key takeaways

  • Many industry leaders, including Goldman Sachs, have altered their predictions for the housing market since early Fall 2022.
  • While mortgage rates have dropped over the past several weeks, they’re not likely low enough to impact demand in the housing market.
  • The lack of affordable housing in the U.S. is unlikely to ease up as homebuilders slow new construction due to low demand.

Since the pandemic began, housing prices have gone up, home shortages have increased and interest rates have risen. Some changes have been purposeful, like the Fed raising rates to battle inflationary pricing. Others have been outside the realm of predictability.


Even experts in the field have changed their housing market predictions over the past few months. This isn’t surprising, as the numbers in front of us seem contradictory. Mortgage interest rates are down even as the Fed is hiking rates, and homebuilders are slowing their pace despite a housing shortage.

While it’s all a bit chaotic, there are some underlying explanations. The immediate future may not be so rosy.

Mortgage interest rates are dropping

Since the beginning of the month, we’ve seen a strange phenomenon. While the Federal Reserve continues to raise rates, interest rates on mortgages have dropped.

This could be in part due to demand. Home prices remain stubbornly high, and interest rates skyrocketed from an average of around 3% at the beginning of the year up to over 7% in October.

These circumstances have led to fewer buyers in the market since finding an affordable home has become increasingly challenging.


Beyond demand, mortgage lenders also have to worry about the bond market. Mortgages are often repackaged into mortgage-backed securities on the bond market. Investors typically look for these securities to beat out both the 10-year Treasury bond yield and inflation.

Mortgage rates are generally around 1.8 percentage points higher than the 10-year Treasury bond yield. In 2022, they’ve climbed up to three percentage points higher due to factors like inflation and the Fed’s decision to no longer purchase these securities.