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Mortgage rates continue their mercurial dance, inching back up for the second straight week after dropping for five weeks prior to that, making it even more difficult to predict where rates are headed into 2023.
The average 30-year, fixed-rate mortgage rose to 6.48% as of January 5, up from 6.42% a week earlier, according to Freddie Mac. Inflationary pressures have been impacting rates, but as inflation appears to be easing, lower rates—and presumably more homebuyers—will follow, says Sam Khater, chief economist at Freddie Mac.
“Homebuyers are waiting for rates to decrease more significantly, and when they do, a strong job market and a large demographic tailwind of Millennial renters will provide support to the purchase market,” Khater said in a statement.
Though 30-year mortgage rates are below the 20-year highs of October and November, they’re still more than double from early 2022.
The 15-year, fixed-rate mortgage averaged 5.73%, up from 5.68% the previous week and up from 2.43% a year ago.
The rates above don’t include the fees called “points” or other costs associated with obtaining home loans.
Related: Compare Current Mortgage Rates
Mortgage Rates Forecast Into 2023
Though the average 30-year, fixed-rate mortgage has cooled from its peaks of 7.08% last year, home shoppers remain priced out of the market due to limited supply and home prices that remain elevated. Consequently, mortgage applications are still at historic lows.
“The end of the year is typically a slower time for the housing market, and with mortgage rates still well above 6% and the threat of a recession looming, mortgage applications continued to decline over the past two weeks to the lowest level since 1996,” says Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association, in a news release.
Stubbornly high mortgage rates have been influenced by the Federal Reserve aggressively hiking its benchmark federal funds rate throughout 2022 to contain rising inflation.
The Fed’s actions do not directly impact mortgage rates, which are tied to yields on Treasury bonds. But the bond market closely follows the Fed’s actions and monetary policy.
Despite uncertainties surrounding how long the Fed will continue tightening credit, many housing experts predict mortgage rates will stabilize between 5% to 6% by the end of 2023, though some predict rates will go higher.
Further “declines in mortgage rates will largely depend on the Fed’s ability to reel in inflation,” says Orphe Divounguy, senior economist at Zillow. “Absent that, rates could just as easily reverse course and head back upward like they did back in the summer.”
Where the Housing Market Is Headed In 2023
Even as home sales continue to decline, home prices are holding firm. That’s mainly because of the ongoing low housing inventory problem, which has declined for four consecutive months through November, according to the National Association of Realtors (NAR).
Existing home sales fell for the tenth straight month, down 7.7% from October to November and a 35.4% drop from a year ago, according to the NAR. Experts blame housing affordability challenges that were driven further by high mortgage rates.
Though the acceleration is slowing a little, home prices continue to climb year-over-year, up 8.6% through November, according to the latest CoreLogic Home Price Insights report. However, there was a slight 0.2% decline in home prices from October to November. Current inflated home prices are due to the pandemic-driven price surges, which were fueled by ultra-low mortgage rates.
The national median home price in November 2022 was $471,200, according to the latest U.S. Census Bureau and the U.S. Department of Housing and Urban Development data. Though this is down from the 2022 high of $484,700 in October, it is nearly 10% more than a year ago.
Despite the slowing home sales and fluctuating mortgage rates, some housing experts are optimistic about the market in the new year.
With “slowly improving affordability and a more optimistic economic outlook than previously believed, the housing market could show resilience in 2023,” says Selma Hepp, deputy chief economist at CoreLogic.
For those in the market to buy a home in 2023, Neda Navab, President at Compass, says you can circumvent the high monthly payments that result from high mortgage rates and inflated home prices by putting more money down.
“Boosting your down payment from 20% to 25%, or even from 10% to 15%, can make a big difference in your ultimate financing costs and can send a signal to sellers about how serious you are,” says Navab.
Related: Best Mortgage Lenders
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