February 20, 2023
If you’ve been following mortgage rates since the Fall of 2022 and thus far into 2023 you obviously know that rates fell from 7.37% to 5.99% earlier this month. However, they’ve been back on the rise again and on Friday, the average 30-year fixed mortgage rate swung back up to 6.8% – the highest it’s been since November 2022.
At first glance, there’s nothing historically abnormal about a 6.8% mortgage rate. See our last blog. However, stating that understates to impact. In fact, according to the Federal Reserve Bank of Atlanta, “…housing affordability is as bad now as it was right before the housing bubble burst of 2007.”
One key factor that could impact mortgage rates is inflation. Inflation occurs when the general level of prices for goods and services in an economy increases, which can reduce the purchasing power of consumers. If inflation rises, it could lead to higher mortgage rates as lenders adjust their rates to account for the higher cost of borrowing. However, central banks such as the US Federal Reserve may also raise interest rates to combat inflation, which could in turn increase mortgage rates.
Another factor that could impact mortgage rates is the state of the housing market. If demand for housing remains high and inventory remains low, mortgage rates may stay low in order to encourage home buying. However, if demand decreases or inventory levels increase, mortgage rates may rise in order to encourage borrowing.
The actions of the central banks in major economies may also impact mortgage rates. For example, the US Federal Reserve may decide to raise interest rates in response to inflation or other economic factors, which could impact mortgage rates in the US. Similarly, the Bank of England may make similar decisions in the UK, and the European Central Bank may do the same for the Eurozone.
What The Experts Are Forecasting
Overall, predicting where mortgage rates may be going in 2023 is a difficult task. However, by examining factors such as inflation, the state of the housing market, central bank policies, and global events, it is possible to gain a better understanding of the potential trends that may impact mortgage rates over the next few years.
Many fellow realtors that we’ve spoken with are mixed in their opinions. Some feel that people will always find a way to get what they want, whether that is a first-time buyer with a dream of home ownership or a seasoned pro.
That said, Lance Lambert, who writes for Fortune, recently wrote a great article on forecasted mortgage rates for 2023 and here are the expert’s summary opinions:
The Mortgage Bankers Association: The D.C.-based trade group projects that the 30-year fixed mortgage rate will average 5.2% in 2023. Beyond this year, the group expects mortgage rates to average 4.4% in both 2024 and 2025.
Bank of America: Researchers at the investment bank expect mortgage rates to fall to 5.25% by the end of 2023. “Mortgage rates likely peaked in 2022 and the historically wide 30-year mortgage rates and 10-year treasury yield spread between could narrow through 2023. Our structured products team expects the 30-year mortgage rate to decline to roughly 5.25% in 2023, as spreads normalize with lower treasury volatility,” wrote BofA researchers on Jan. 11.
Morgan Stanley: The Agency MBS strategists at Morgan Stanley believe that mortgage rates will fall to 6% by the end of 2023.
Fannie Mae: Economists at Fannie Mae, which was chartered by U.S. Congress in 1938 to provide affordable mortgage financing, project that the 30-year fixed mortgage rate will average 6.3% in 2023 and 5.7% in 2024.
Freddie Mac: Economists at Freddie Mac, which like Fannie Mae was also chartered to provide affordable mortgage financing, forecast that the 30-year fixed mortgage rate will average 6.4% in 2023.
Moody’s Analytics: The financial intelligence arm of Moody’s projects that the 30-year fixed mortgage rate will average 6.5% through most of 2023. (You can find Moody’s Analytics regional and national home price outlook here.)
Goldman Sachs: The investment bank projects that the 30-year fixed mortgage rate will end 2023 at 6.5%. “We expect 30-year fixed mortgage rates to rise to 6.5% by year-end, reflecting narrower mortgage spreads due to a rebounding MBS market—particularly for securitizations with explicit or implicit government guarantees—but higher Treasury yields. We also note that the rapid decline in mortgage origination, especially refinances, has caused some lenders to exit or scale back lending. This has the potential to allow the remaining lenders to expand their margins by pushing mortgage rates higher,” wrote Goldman Sachs researchers on Jan. 23. (You can find Goldman Sachs’ latest home price forecast here).
Realtor.com: Economists at the home listing site believe the 30-year fixed mortgage rate will average 7.4% in 2023.
Let’s hope that those experts who feel that rates will settle in the sub 6% range are correct.
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