Will Mortgage Rates Rise in 2023?
The US housing market has been on a rollercoaster ride for the past few years, and 2023 looks to be no different. As reported by Freddie Mac, mortgage rates have continued to rise for the fifth consecutive week, and the 30-year fixed-rate mortgage averaged 6.73% in the week ending March 9, up from 6.65% the week before. This is the highest rate we've seen since November 2022 when the rate peaked at 7.08%. However, this current rate is still below the historical average.
The rising mortgage rates are primarily due to the Federal Reserve's suggestion that they will continue to increase rates to combat stubborn inflation. Inflation seemed to be cooling coming into 2023, but strong employment numbers and a rising Consumer Price Index have revealed that inflation remains stubbornly high. Federal Reserve Chairman Jerome Powell stated in testimony to Congress that the central bank will likely raise interest rates higher than previously forecast to fight inflation. This suggests that a half-point rate hike is back on the table at the Fed's next rate-setting meeting scheduled for March 21-22.
The housing market has already begun to feel the effects of the rising mortgage rates. Although mortgage applications rose slightly last week after three weeks of declines, according to the Mortgage Bankers Association, activity remains muted. Home buyer sentiment returned to record lows in February, according to a survey from Fannie Mae, with the most notable drops in sentiment being in those associated with job security and home-selling conditions. Additionally, the US housing market is currently short 6.5 million homes, making it challenging for would-be homebuyers to find affordable homes.
However, all hope is not lost for sellers. Recent sales data shows that the share of first-time homebuyers is up compared to one year ago. This means that sellers with starter homes may still see robust demand and retain some bargaining power. Furthermore, the lasting presence of hybrid working models offers home buyers more flexibility in where they choose to live. Some buyers may move further away from work if they aren't commuting every day, making homes with easy access to public transportation systems more attractive to home buyers and enhancing bargaining power for sellers.
Hence, it looks like mortgage rates will continue to rise in 2023 as the Federal Reserve continues its battle to cool the US economy and combat stubborn inflation. This means that the housing market may continue to feel the effects of rising mortgage rates, with activity remaining muted for the time being. However, sellers can still find opportunities, particularly with first-time homebuyers and those looking for homes with easy access to public transportation systems. It's essential to keep a close eye on the latest developments from the Federal Reserve to make well-informed decisions.
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Mortgage Rate Predictions 2023
Mortgage experts see rates decreasing over the coming months as the economy slows. Lawrence Yun, the chief economist of the National Association of Realtors, said he expects rates to fall to 5.5 percent by mid-2023. Fannie Mae sees the average rate of a 30-year fixed getting to 6.8% in 2023. Meanwhile, the prediction from Freddie Mac is 6.4%.
According to an updated prediction from the Mortgage Bankers Association as well, mortgage rates are also anticipated to fall in 2023, MBA economists also predicted that the United States would enter a recession in the first half of next year, owing to tighter financial conditions, reduced business investment, and slower growth globally. According to their mortgage rate prediction, this will raise the unemployment rate from 3.5% to 5.5% by the end of 2023.
“Next year will be particularly challenging for the US and global economies,” said Mike Fratantoni, chief economist and senior vice president for research and industry technology. “The sharp increase in interest rates this year – a consequence of the Federal Reserve’s efforts to slow inflation, will lead to an equally sharp slowdown in the economy, matching the downturn that is happening right now in the housing market.”
However, the good news for homeowners is that mortgage rates are projected to fall next year, according to Fratantoni. According to MBA, mortgage rates will conclude in 2023 at roughly 5.4%. According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage is currently 6.94%. Fratantoni warned that mortgage rates will remain volatile in the coming months because the Fed is projected to continue raising interest rates this year.
According to the forecast, the Fed's continuous attempts to contain inflation will eventually limit homebuyer demand for mortgages in 2023. Mortgage origination volume is expected to decline to $2.05 trillion in 2023 from the $2.26 trillion expected in 2022, according to MBA. The forecast calls for purchase mortgages to drop by 3% next year, while refinance volume is anticipated to decline by 24%. The slowdown in housing activity and higher mortgage rates will cut the pace of home price growth, according to MBA. The forecast projects national home prices to be roughly flat in 2023 and 2024.
Mortgage Interest Rate Weekly Trends 2023
The mortgage industry is currently experiencing fluctuations in interest rates due to the Federal Reserve's efforts to curb inflation, which started in mid-2021. The benchmark fixed rate on 30-year mortgages is at 6.3 percent, down from last month's levels, according to Bankrate's national survey of large lenders. The Federal Reserve raised rates at its February meeting, which was its eighth consecutive increase, albeit by just a quarter-point. Mortgage interest rates doubled in 2022, peaking at 7 percent in November.
However, inflation has finally started to slow, and mortgage rates could continue to decrease. Some experts predict that fixed mortgage rates might dip back into the 5 percent range in 2023. The Federal Reserve's actions primarily impact adjustable-rate mortgages (ARMs) and home equity products. Still, it also has some influence on fixed mortgage rates through its effect on 10-year Treasury yields, which drive fixed mortgage movement.
Despite the Fed's policies not directly affecting fixed mortgage rates, it might indirectly result in lower long-term rates, including mortgage rates. As the Fed raises short-term interest rates, bond investors will be less concerned about inflation, increasing the risk of a recession, which leads to them investing in bonds.
In this environment, it's crucial to compare mortgage rates before choosing a lender. Conducting an online search can help you save thousands of dollars by finding lenders offering lower rates and more competitive fees.
| 3-month trend | 30-Year Fixed Interest Rates | 15-Year Fixed Interest Rates | 10-Year Fixed Interest Rates | 5/1 ARM Interest Rates |
|---|---|---|---|---|
| 3/10/2023 | 7.13% | 6.34% | 6.38% | 5.88% |
| 3/3/2023 | 7.06% | 6.28% | 6.45% | 5.81% |
| 2/24/2023 | 6.95% | 6.23% | 6.43% | 5.67% |
| 2/17/2023 | 6.77% | 6.12% | 6.06% | 5.53% |
| 2/10/2023 | 6.55% | 5.84% | 5.85% | 5.46% |
| 2/3/2023 | 6.36% | 5.66% | 5.65% | 5.43% |
| 1/27/2023 | 6.43% | 5.65% | 5.63% | 5.42% |
| 1/20/2023 | 6.36% | 5.63% | 5.72% | 5.41% |
| 1/13/2023 | 6.46% | 5.85% | 6.01% | 5.50% |
| 1/6/2023 | 6.52% | 6.06% | 6.22% | 5.50% |
| 12/30/2022 | 6.59% | 5.95% | 5.89% | 5.45% |
| 12/23/2022 | 6.47% | 5.83% | 5.74% | 5.45% |
| 12/16/2022 | 6.60% | 6.00% | 6.11% | 5.46% |
| 12/9/2022 | 6.52% | 5.91% | 5.99% | 5.45% |
| 12/2/2022 | 6.67% | 6.04% | 6.07% | 5.48% |
| 11/25/2022 | 6.81% | 6.16% | 6.26% | 5.51% |
| 11/18/2022 | 6.84% | 6.22% | 6.35% | 5.54% |
| 11/11/2022 | 7.24% | 6.46% | 6.56% | 5.62% |
| 11/4/2022 | 7.23% | 6.45% | 6.67% | 5.53% |
| 10/28/2022 | 7.20% | 6.43% | 6.67% | 5.55% |
| 10/21/2022 | 7.20% | 6.43% | 6.59% | 5.44% |
| 10/14/2022 | 7.08% | 6.28% | 6.33% | 5.37% |
Sources
- https://www.mba.org/
- https://www.bankrate.com/mortgages/rate-trends/
- https://www.bankrate.com/mortgages/mortgage-rates/
- https://www.forbes.com/advisor/mortgages/mortgage-interest-rates-forecast/
- https://themortgagereports.com/32667/mortgage-rates-forecast-fha-va-usda-conventional
- https://edition.cnn.com/2023/03/09/homes/mortgage-rates-march-9/index.html
