The Federal Reserve increased the key interest rate by just one-half of a percentage point Wednesday, after four rate hikes. The central bankers likely took into account new data that shows inflation is continuing to decline.

The federal funds rate will now range from 4.25% to 4.5% according to this announcement. In response, interest rates on consumer products like home equity lines will rise. However, many lenders have already priced in an increase of 50 basis points for mortgage interest rates.

Potential for a muted impact mortgage rates

Experts have mixed opinions about how high mortgage rates could rise in 2023. Robert Frick, corporate economist at Navy Federal Credit Union stated in an email that he expects mortgage rates to rise above 7% during the first half of the year and then fall as the economy slows.

Others believe that the days of fixed-rate 30-year loans with 7% interest rates are gone. Nadia Evangelou (senior economist, director of real-estate research, National Association of Realtors) commented via email that mortgage rates may have “peaked”. Although rates are more than twice as high as they were a year ago,” Nadia Evangelou, senior economist and director of real estate research for the National Association of Realtors, said via email that rates could stabilize at 6% if inflation slows down. ”

Good news! Although it may take some time, there is consensus that interest rates will eventually fall. This would be a positive shift for homebuyers who are priced out of the market due to rising interest rates. According to the National Association of Realtors (NAR) data, in October, the monthly principal-and-interest payment for a median-priced house topped $2,000 despite a slight decline in home prices. This is more than a household with a median income, and it’s over $800 higher than the previous year. Buyers would be able to spend more if rates were lower.

Home prices fall, but don’t crash

Although high home prices aren’t helping with affordability, there is hope. According to the NAR’s October median home price, $379,100 was the lowest since September. However, housing prices continue to rise year after year.

Frick stated that “home price increases have begun to slow down, and prices are likely to drop overall next year.” “But drops will vary by market. Many markets with the highest appreciation are likely to experience the largest declines.” Frick said that housing prices have increased so rapidly in recent years that “giving up even 5% overall is not a huge drop.”

Some homeowners are reluctant to take out a mortgage with a higher interest rate these days. Melissa Cohn, a New York City-based vice president regional at William Raveis mortgage, says that people who want to move are not moving. Most sellers are going through a life change, financial or otherwise. There will be a limit to the number of homes available for sale, which will cause prices to fall.

What does this mean for home buyers

Experts predict that mortgage rates will decline by 2023. However, the Fed hasn’t stopped raising rates. These may decrease to 25 basis points but interest rates should not be reduced until central bankers truly believe that inflation is slowing.

The Fed would have to resign if the economy plunges into recession. This would be bad news for all but good news for mortgage rates. Rates could fall meaningfully without the Fed’s upward pressure.

Regardless of how they occur, lower interest rates could prove to be the key to reviving the housing market. Although inventory may not rise enough to increase competition among sellers, buyers would have more options because there would be more homes available for sale, and less interest would allow them more budget flexibility.

These major forces influence the housing market but they won’t dictate whether you will buy or sell your home in the next year. Frick stated that it is best to focus on your personal situation and what you can afford. Waiting for rates and home prices to fall is a good option if you feel that both are too high. ”

Your employment outlook and goals should be more important than what the Fed does.

An earlier version of this article misidentified Robert Frick’s title. He is a corporate economist with Navy Federal Credit Union. This article has been updated.