7 Answers to Your Clients’ Questions About Inflation and Interest Rates

Labor Day is in the rearview. The kids are (ideally) back in school. Summer is officially over. And with high mortgage rates forcing many would-be buyers and sellers to stay put, it’s time to focus on off-season strategies.

As we take stock, inflation remains diminished but entrenched, mortgage rates in August hit their highest level in more than two decades, and limited inventory continues to push home prices upward.

To help you answer client questions, we turned to Zillow senior economist Jeff Tucker. Read on for takeaways you can talk through with your clients.

Will mortgage rates come down soon?

“We still expect mortgage rates to gradually decline in the medium- to long-run, but their unpredictability this year has certainly humbled us,” Tucker says. “We’ve backed off from predicting that the medium-run decline will necessarily start soon.”

High inflation and the Fed's monetary policy to tame it were likely the main culprits behind high rates last winter and this spring, according to Tucker. “But now even as inflation fades, it seems that resilient, real economic growth is rising as a new reason for rates to stay higher for longer.”

Does waiting until next year to buy or sell make sense?

The most important part of the economy to any buyer is their own career and financial outlook.

“Do they feel secure in their current job and confident their income will hold steady or ideally grow?” Tucker says. “If so, that's how they should determine the right time to buy. If they're hoping for an economic cooldown to face less buying competition, it'd be hard to do better than just buying in this off-season.”

Should I look into new construction homes?

Sales of new single-family homes rose to 714,000 (annualized) in July, up 4.4% from June and 31.5% higher than in July 2022. Tucker expects the competitive edge for new construction to continue in the months ahead.

“Builders can continue to offer two amenities mostly missing in the resale market: selection, and interest-rate buydowns,” he says. “Home shoppers have been frustrated by the lack of resale listings for over a year now, while builders offer a range of selection, including customizability.”

Will the next selling season be more competitive, even if rates don’t drop?

“If rates don't drop, we expect another subdued year for sales volume,” Tucker says.

If high borrowing costs continue to dampen transactions, we can expect more competition for entry-level homes and more new home sales, which in July experienced the strongest sales in 17 months.

Is an adjustable rate mortgage better right now than a 30-year fixed mortgage?

After seeing a slight resurgence in popularity in 2022, adjustable rate mortgages have comprised just 9-11% of all mortgages in 2023, depending on the month. Whether an ARM is a good idea for buyers depends on how much it might save today.

According to Tucker, “If buyers are confident interest rates will come down in the next few years, and also that they could afford the monthly payment even if rates were, instead, to rise, then it might be worth considering an ARM.”

I’m considering buying. What else should I know about inflation and mortgage rates?

“Predicting the market is very tough,” Tucker says. “Many seasoned observers expected mortgage rates to fall over the course of 2023; instead they ended up climbing to new heights this summer.”

The goal should be to find the perfect home at an affordable monthly cost. Waiting around to try to time the market won't necessarily help your clients meet that goal. “Buyers should focus on the factors they do know: purchase price, location, their own income, and the rates they're being quoted today.”

This fall is shaping up to look a lot like last fall, with more inventory for buyers than earlier this summer, and fewer bidding wars pushing up sale prices. “For someone who maybe got burned by the red-hot spring shopping season,” he says, “they might appreciate the more favorable buying conditions this fall.”

I’m considering selling. What else should I know about inflation and mortgage rates?

Tucker believes homes that list soon will have better chances of selling than during the winter.

“While mortgage rates are very difficult to forecast, the seasonal swings in the housing market are fairly predictable,” he says. “September is a transitional month, when the spring and summer frenzy of the home shopping season gives way to slower, cooler conditions of fall and winter.”

Still, most sellers can expect to fetch a better price now than in the depths of winter. “All it takes is one or two of the right buyers to come along,” he says. “And if no such offer arises, the seller can always opt to de-list and try again in the spring.”