Interest Rates and Timing of the Market

Some of the top real estate economists in the country predict that mortgage rates will drop this year as inflation declines and the US economy gears up for the possibility of a mild recession. This comes after 2022 saw record-breaking annual increases in mortgage rates.

Lower mortgage rates may attract homebuyers who couldn't afford to buy last year, but housing affordability will still be a significant issue. The demand for buying homes has decreased due to higher borrowing costs, but the supply shortage has kept home prices high. Although inventory is expected to improve soon, it is still significantly lower than pre-pandemic levels.

Expert Economists Forecast Mortgage Rates and Housing Affordability

• Mortgage Bankers Association (MBA): “Long-term rates have already peaked. We expect that 30-year mortgage rates will end 2023 at 5.2%.”

• Freddie Mac: Forecasts the average 30-year mortgage to start at 6.6% in Q1 2023 and end at 6.2% in Q4 2023.

• Realtor.com economist, Jiayi Xu: “Mortgage rates are likely to move in the 6% to 7% range over the next few weeks, which continues to pose a significant challenge to affordability.”

• Zillow Home Loans senior macroeconomist Orphe Divounguy: “A fight over raising the debt ceiling is likely to drag into the summer, and mortgage borrowers should expect rate volatility as a result.”

• National Association of Realtors: "The 30-year fixed mortgage rate will likely average 5.7% and 5.6% in the second and third quarters of the year, respectively. With a 6% mortgage rate, housing will become more affordable for many buyers." – Nadia Evangelou, NAR

• Daryl Fairweather, chief economist at Redfin: “When rates come down, we’re going to be in store for another hot housing market where there are more buyers than sellers jacking up prices because we haven’t solved the problem” of low inventory, It’s still that affordability problem. That’s going to stay with us. In every scenario, rates will come back down,” she says. “It’s just a matter of when.”

Looming debt limit standoff could push rates back up,” said Orphe Divounguy, a senior macroeconomist at Zillow Home Loans, and added, “This could raise borrowing costs, including mortgage rates, thus hampering an already cold housing market.”

Mortgage Banker, Association MBA data, shows mortgage applications are still hovering around a 20-year low.

The average mortgage rate for a 30-year fixed is 6.43%, nearly double its 3.22% level in early 2022.

The average cost of a 15-year, fixed-rate mortgage surged to 5.71%, compared to 2.43% in January 2022.

How to get the best rates in this fluctuating market

Watch the exchange rates: Mortgage interest rates fluctuate frequently. Finding and locking at a better rate will be simpler if you closely monitor things.

Your credit report: Your rate will be better the higher your credit score. Before you apply, check your credit to see where you stand. If there are any errors, dispute them with the relevant credit bureau to raise your score.

Shop around for lenders: When seeking the best mortgage deal, exploring options from various lenders and shopping around to discover the most favorable terms and rates is essential. Request good faith estimates from multiple lenders to determine who will compete for your business. Additionally, discussing adjustable-rate mortgages (ARMs) with your lender may be worthwhile, particularly in today's environment, as they could be more affordable than fixed-rate mortgages. Recent data shows that the average rate for a 5/1 ARM is currently 5.75%.

What Influences Rates

Mortgage interest rates are subject to various factors, such as the economy's overall state, the Federal Reserve's monetary policy, and inflation. In particular, the bond market exerts a direct influence on long-term mortgage rates. Apart from these broader factors, the interest rate you are offered will also depend on the lending institution you choose, its expenses, and your financial circumstances. Hence, it is essential to consider all these factors when shopping around for a mortgage to secure the best rate possible.

Affordability is going to be a Major Challenge

"We were undersupplied going into the pandemic, and that unexpected demand boom just made things a lot worse. The slowdown in building of late is certainly not going to help the supply issue. If we do see rates continue to fall, we’re still going to need that supply." –Joel Kan, MBA

"As mortgage rates come down, we're going to see a lot of potential sellers who had been locked into their really low rates. A decrease in mortgage rates will help to facilitate that a little bit because 70% of sellers end up buying again. If affordability is a problem for buyers, it's also a problem for sellers." – Orphe Divounguy, Zillow

Navigating the 2023 Housing Market: Advice for Home Buyers

"It's not timing the market, but time in the market. It's not a good idea to try and time the market, so for housing, it's all about finding that home you love, because you're going to be in it for a long time. Even potential landlords, you wouldn't want to buy a house that you wouldn't see yourself living in." — Orphe Divounguy, Zillow

"Forty-two percent of Redfin deals got concessions, like seller-paid rate buydowns (in the fourth quarter of 2022). They're able to get that because of the additional bargaining power. There are some buyers that if they play the market right, they can find that good deal." – Marr, Redfin

Conclusion

Despite the ongoing competition among home buyers, the current market has seen a decline in robustness due to higher mortgage rates. While purchasing a home at this time may result in slightly higher rates, it also gives buyers greater bargaining power. Given the inherent volatility involved, attempting to time the market is never a sound strategy. So, if you need a home, I recommend purchasing now since it will offer you more leverage. Once rates eventually decrease, the market will likely become frenzied again, pushing prices higher; thus, you will pay more.