Mortgage Forecast For 2023
Mortgage rates have more than doubled this year, surpassing most analyst expectations, as homebuyers have retracted from applying for a mortgage. While some housing experts say mortgage rates will calm down in 2023, the predictions are wide-ranging, with others forecasting rates to exceed 11% by year-end.
The extreme mortgage rate highs and lows seen this year, and being predicted for next year, are largely due to lingering economic uncertainty, recession fears and the Federal Reserve’s aggressive actions to contain rising inflation.
If the Fed’s “approach becomes more aggressive, we will see mortgage rates increase even further,” said Keller Williams Chief Economist, Ruben Gonzalez. “Rising mortgage rates have continued to slow housing market demand, resulting in slowing sales and slower home price appreciation.”
The average 30-year, fixed-rate mortgage continues to hover in the 7% range through early November—more than double the 3.22% average at the start of 2022, according to Freddie Mac. The past several years when rates stayed below 4% appear to have ended as most economists predict mortgage rates around 6% or more in 2023.
Where Will Mortgage Rates Head in 2023?
Forecasts published by the Economy Forecast Agency (EFA) take a bleak outlook, with a 30-year, fixed-rate mortgage around 7% in January 2023 and surpassing 11% in the fourth quarter of 2023. Fannie Mae has a lower prediction for the 30-year mortgage averaging between 6.2% and 6.6% throughout the year.
To get a deeper perspective, here are the mortgage predictions from a handful of housing experts:
- HSH.com mortgage website vice president, Keith Gumbinger: “At this point, a peak for rates seems likely to come earlier in the year and flatten/turn downward later, and the 30-year FRM will probably run in a 6.5% to 7.5% range for the year. The most popular ARM (five-year) will continue to grind higher along with short-term rates, and probably manage a 5.5% to 6.75% range next year.”
- ATTOM executive vice president of market intelligence, Rick Sharga: “Assuming that Fed actions this year show progress in slowing down inflation, the Fed can begin to back off its rate increases, and mortgage rates can begin to come back down as well—but much more slowly than they went up this year. In a best-case scenario, we may see rates for 30-year mortgages somewhere between 5.5% to 6% by the end of 2023.”
- Zillow Senior Economist Jeff Tucker: “If inflation convincingly cools down, and the Fed subsequently stops tightening monetary policy, we could see rates begin to ease back down. The best bet is that we continue to see mortgage rates in the ballpark of current levels, perhaps from 6.5% to 7.5%.”
- Mortgage Bankers Association (MBA): An average of 5.5% at the end of the fourth quarter of 2022 and 5.4% at the end of 2023. “We expect significant volatility in rates in the near term due to quantitative tightening by the Fed and other central banks, and as markets grapple with significant geopolitical, economic and monetary policy uncertainties.”
- National Association of Realtors (NAR) Chief Economist Lawrence Yun: “The new normal for mortgage rates looks to be near 7% for the 30-year fixed rate. A better rate of 6% will be available to those willing to go with a five-year ARM.”
Will 2023 Be a Good Time to Buy a Home?
Given the wide range of possible mortgage rates scenarios for the coming year, it is difficult to predict if rates will go down enough to make 2023 a good time to buy a home.
Even so, real estate industry experts typically say that if you see a home you love and plan to make it your primary residence for an extended period of time–at least five or ten years–you shouldn’t try to time your purchase in conjunction with a more favorable mortgage rate.
A better strategy is to buy based on your finances and your needs. Understanding your credit score to see if there are ways to improve it and meeting with lenders to see what loans you qualify for will put you in a stronger position once you are prepared to purchase a home.
Just make sure whatever home you buy fits into your budget so you’re not stuck with higher monthly payments that you can’t afford, which can turn a dream home into a nightmare.
Is 2023 a Good Time to Sell a Home?
Home sellers have gotten used to selling at red-hot prices in recent years, but that began to wane around May when mortgage rates were rising, making housing unaffordable for many shoppers.
Since then, the housing market appears to be leveling off which means some sellers may have to lower their prices or look at the more immediate home sale comparables in their area rather than homes that sold at the peak earlier this year.
Unlike the last couple of years, experts say that sellers will need to work a little harder to attract buyers. So selling strategy may require more than just lowering the price.
“As a seller, you may need to be more flexible with regard to how much you hope to get for your home,” says Gumbinger. “At the same time, buyers in the market likely won’t be interested in paying top dollar for properties that need considerable work or upgrades, so getting maintenance and repairs in place before listing will help pique buyer interest.”
Overall, it really depends on how quickly you need to sell: If you have time to wait for the price you want, you may not need to lower your offer as quickly in tandem with rising rates. But in a market where interest rates are hitting 20-year highs, being willing to lower the home prices to compensate for that might help you sell faster.