Due to the Federal Reserve’s most recent hike in interest rates, housing affordability has fallen to its lowest point in three decades. Since the beginning of the year, mortgage rates have more than doubled due to this historic campaign of raising interest rates to rein in spiraling inflation.
As of October 2022, the average interest rate on a 30-year fixed-rate mortgage increased to 6.94%, according to Freddie Mac, the industry leader in mortgage financing. Specifically, due to the central bank’s rate increases, a possible recession, and contradicting economic reports, mortgage rates have become more unpredictable during the past few months. Based on this housing market instability, specialists developed mortgage forecasts for 2023, which are discussed in the sections below.
Mortgage Rate Predictions for 2023
The financial instability caused by changing interest rates, inflation, and a weakening global economic state significantly impacts the American housing market. Some experts’ forecasts in this regard are:
Less Supply + Less Competition
As per the reports of the National Association of Realtors, in September, sales of existing homes, including single-family homes, flats, condominiums, and co-ops, fell around 1.5% from August and were down 23.8% from the same month last year. Given these downward trends, the prediction is that prices will eventually drop in a stagnant housing market since there will be less supply and less competition. This suggests there will be fewer purchasers and fewer houses available in the future.
Mortgages Rates Rising
Mortgage rates will rise further, but at a slower rate than in previous months, according to mortgage experts. Inflation is one macroeconomic factor that affects this increase in mortgage rates. Consumer prices are 8.2% higher than the last year, and in reaction, the Federal Reserve increased its benchmark interest rate.
Home Sales to Decrease
With mortgage rates rising and mortgage application statistics pointing to significant sales decreases in the near term, experts lowered their outlook for existing home sales through 2023. They now anticipate that existing home sales will decrease overall by 5% from 2021 to 2022 and then again by 13.3% from 2022 to 2023.
The economy will experience a significant slowdown in the coming year, mirroring the current downturn in the housing market, as a result of the Federal Reserve’s efforts to control inflation.
Mortgages Rates Slowing
Mortgage rates are expected to drop next year, which is good news for anyone looking to buy a home. The average 30-year mortgage rate is expected to fall somewhere between 0% and 9.31% in 2023. For the 15-year fixed mortgage rate, forecasts range between 4.5% and 8.75%. According to the Mortgage Bankers Association, mortgage rates will remain around 5.4% by the end of 2023.
Reduced Purchase Mortage Rates
MBA predicts that mortgage origination volume will decrease from the $2.26 trillion anticipated in 2022 to $2.05 trillion in 2023. Purchase mortgages are predicted to decrease by 3% next year, while refinance volume is predicted to fall by 24%.
Refinancing Volume Drops
The predicted refinance market size for 2022 and beyond has been severely reduced by increasing mortgage rates. Compared to past predictions, anticipation for 2022 volumes equals $731 billion. As per experts, in 2023, refinancing volume will drop further to $490 billion, a $102 billion drop from the previous month’s prediction.
Purchase Volumes to Increase
Experts are still projecting 2022 purchasing volumes of $1.7 trillion, essentially unchanged from previous months. With fewer changes to the forecast for housing sales, projections are that in 2023, purchase volumes will fall by around 5% to just under $1.7 trillion, a reduction of $17 billion from the previous forecast.
Plausible Causes of Mortgage Rate Volatility
Mortgage interest rates skyrocketed in 2022, and these patterns appear to last well into 2023. Listed below are a variety of variables influencing mortgage rates:
- Inflation is the primary cause of mortgage rate hikes.
- The fed funds rate has experienced significant rises, and additional increases are anticipated in 2023. These hikes significantly influence mortgage rates.
- The ongoing crisis in Ukraine has created uncertainty around the world, impacting the global economy and mortgage rates.
- Volatility in the international and American stock markets.
- Fears of a recession and instability in the economy.
- Continued labor shortages and supply chain disruptions.
What Do the Most Recent Mortgage Rates Mean for First-Time Homebuyers?
When looking for a property, rising interest rates can reduce the purchasing capability of first-time homebuyers. In some cases, market demand grows when interest rates rise rather than decrease. That’s because homebuyers believe that they should purchase as soon as possible. After all, interest rates are rising. Do not let interest rates unreasonably influence your decision to buy a home. The amount of housing the borrowers can afford should be adjusted after thoroughly analyzing their situation.