If becoming a homeowner is on your to-do list, you may be wondering what the upcoming year has in store for home affordability and mortgage interest rates.
We are asked time and time again, “Will interest rates drop in 2023?” The answer is… unclear and complicated. Sorry about that.
The truth is that no one really knows what next year’s home interest rates will be. What we do know is that we’re looking at a plethora of economic conditions that may perpetuate rate volatility in 2023, at least to a degree.
To understand the future, let’s look at the past. In 2022, we entered a year of uncertainty in the interest rate world and rate volatility reflected that. While experts predicted higher mortgage rates throughout the year, the markets weren’t expecting rates to shoot up as quickly as they did.
After beginning the year with rates in the 3s and 4s, we are closing out the year with an average 30-year fixed mortgage closing in the 6s. The war in Ukraine, inflation and the Fed’s aggressive reaction to it, along with general fears of a looming recession all had an impact on the trajectory of mortgage rates in 2022.
The Dot Plot that was released by the Fed a couple of weeks ago is indicative of continued higher interest rates throughout 2023. Experts predict rates to remain at or around these current levels for most of the year, barring a recession or some type of black swan event, in which case rates may fall.
While continued volatility is certainly possible, many economic indicators point to some stabilization in 2023, albeit in this higher interest rate climate. At this point, the mortgage industry is craving stabilization more than lower rates. Uncertainty is the biggest killer in the housing sector.
The bottom line: rates will likely stay in the 6% range in the upcoming year.
“So then… is now a good time to buy a house?”
We in the mortgage industry will be fielding this question wherever we go for the foreseeable future. Our typical response will become a mantra in 2023:
If you are in the right place financially to enter the housing market, go for it. Don’t try to time the market. Don’t play against the house (pun intended).
Sure, you could catch it right when both housing prices and rates have fallen, but that’s unlikely. You have just as much of a chance of getting trapped with even higher rates if you wait out both falling prices and lower borrowing costs.
It is important for buyers to know that even though they are taking out a 30-year mortgage, it doesn’t mean you are trapped in that loan for 30 years. You can always refinance once rates are lower. The common cliché in the mortgage industry is: You marry the house, not the interest rate. Look for a lender (like Ark) that offers a Lifetime Guarantee that waive lenders’ fees and cover your appraisal on any future refis.
So if you’re able to buy in 2023, don’t let the talking heads in the economy scare you out of it. There are a lot of reasons to purchase a house and become a homeowner, finances being only one of them. You may need to upsize, downsize, start a financial legacy for your children, escape rising rents, or any number of reasons. You have to make decisions that are best for your family.
While the rate outlook for 2023 is a bit crummier than we had hoped for, the Fed sees rates slowly declining over the course of 2024 and 2025. This will lead to refi opportunities for those who become homeowners in the upcoming year.