Why mortgage rates are likely to drop as 2023 housing outlook remains gloomy (2023)

On the heels of the central bank’s announcement to raise the federal funds rate by 50 basis points to 4.25%-4.50% on Wednesday, most economists and industry experts were on the same page about the housing outlook and which direction mortgage rates would be headed.

Growing concerns of a recession, led by the Federal Reserve’s continued interest rate hikes next year, will prompt mortgage rates to trend lower in 2023, according to numerous experts. However, activity in the housing market will remain depressed at least in the first half of next year as home affordability continues to be a challenge for homebuyers.

According to Mike Fratantoni, senior vice president and chief economist at Mortgage Bankers Association, there are increased signs that the U.S. is headed for a recession next year.

“Weaker growth typically leads to lower long-term interest rates, including mortgage rates,” Frantoni said in a statement.

Central bankers now expect unemployment to rise to 4.4% by the end of 2023, according to fresh projections, up from an estimate of 3.9% in September — when estimates were last published. Policymakers are also expected to lift borrowing costs to 5.1% by the end of next year, an increase from its projected 4.6% in September.

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If recent trends continue with respect to consistent declines in inflation and an increasing risk of recession, we may be near the peak rate for this cycle, which is now expected to be just over 5%, Fratantoni said.

“The MBA is forecasting that mortgage rates for 30-year fixed-rate loans, which were at 6.4% last week, are expected to drift down and end 2023 around 5.2%,” he said.

Mortgage rates are taking the Fed’s move as a clear indication that the pace of interest rate increases will be moderate, and the market is hopeful that any increases in 2023 will be in the more typical 25 basis point increments, Marty Green, principal at Polunsky Beitel Green, law firm for residential mortgage lenders, said.

The 10-year Treasury note, which dictates mortgage rate movements, dropped to 3.49% on Wednesday from 3.51% on Tuesday after the Bureau of Labor Statistics released the Consumer Price Index, a timely inflation measure.

Bond yields reversed course and headed lower when the Fed chairman Jerome Powell was speaking, Logan Mohtashami, lead analyst at HousingWire said.

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“This is the bond market saying to Powell, we don’t believe your lies, and the Pinocchio nose grew more extensive and more significant the more he talked today,” Mohtashami said.

While mortgage rates eased over the last few weeks, Danielle Hale, chief economist at Realtor.com noted that understanding the volatility in mortgage rates is important.

Volatile mortgage rates meant that “shoppers have to visit and revisit their budgets to ensure they’re set appropriately,” Danielle Hale, chief economist at Realtor.com, said.

“We expect higher rates are likely to stick around until inflation makes much bigger strides back toward the 2% target. But in a welcomed pace of change, we expect lower volatility in mortgage rates in the year ahead,” Hale said.

Realtor.com expects mortgage rates to reach 7.1% by the end of 2023, dropping slightly from the projected 7.5% by the year-end. It projected mortgage rates to average 7.4% in 2023, up from the expected 5.5% in 2022.

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“Now the market is waiting to see whether mortgage rates will rise to keep pace with the Fed’s half-point rate increase this week, or if mortgage rates will drop on expectations that inflation will fall even more,” Holden Lewis, home and mortgage expert at NerdWallet, said.

Not much good news for homebuyers

Activity in the housing market, the most interest-sensitive sector, as noted by Powell, isn’t likely to fully recover until at least the first half of 2023. Housing services inflation has been very, very high and will continue to go up before coming back down sometime next year, Powell said of the industry — which has suffered due to elevated home prices, a lack of inventory and high mortgage rates that have chilled activity.

While mortgage rates are largely expected to drop, the combination of the holiday season and both buyers and sellers remaining on a strike won’t bring any meaningful impact to the housing market, Brian Hale, CEO and founder of Mortgage Advisory Partners, said. Unless housing prices or interest rates drop to 4% or 5% levels, he doesn’t expect to see any material change in the housing market.

The latest measure of mortgage demand, released last week, showed a rise in mortgage applications, but lower rates haven’t convinced home buyers to lock in their mortgage rates.

Rate lock dollar volume was down 68% year over year, driven across the board by purchase locks, according to Black Knight. Headwinds from both interest rates and affordability continue to challenge purchase lending, with the dollar volume of such locks down 37% over the past three months — and down by more than 50% from November 2021.

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An improved interest rate environment convinced some buyers to re-enter the market, but “activity is far below what was occuring in 2022 as home affordability, the transition of the residential real estate market, and the fears of a recession continue to significantly dampen demand for housing,” Green said.

Existing home median price appreciation is forecast to slow at 5.4% growth in 2023 from this year’s expected 10.2%, according to Realtor.com. Existing home sales are also set to decline to 4.53 million units next year, down from the expected 5.28 million units.

Existing-home sales, which have fallen each month since January as mortgage rates surged on the back of the Federal Reserve’s aggressive campaign to hike interest rates to control inflation, are projected to slide by another 6.8% to 4.78 million in 2023.

The National Association of Realtors forecasts existing home sales to slide by another 6.8% in 2023, dropping to 4.78 million. The median transaction price for homes is expected at $385,000 next year, more or less flat by supply constraints, the NAR said.

“Next year will be a tale of two years — the first half of 2023 will be very difficult because even If rates drop, it takes time for borrowers to notice, sellers to adjust their price, a deal to get signed and a deal to get financed,” Hale said.

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Will mortgage interest rates go down in 2023? ›

Mortgage Rate Projection for 2023

But many forecasts expect rates to begin to fall this year. In their latest forecast, Fannie Mae researchers predicted that 30-year fixed rates will trend down throughout 2023 and 2024.

What will mortgage interest rates be in 2023? ›

Current Refinance Rates for March 2023

30-year fixed: 7.12% 15-year fixed: 6.29% 30-year jumbo: 7.25%

Will 2023 be a good time to buy a house? ›

Levine added, “Home prices will also moderate further over the next several months as interest rates remain elevated in the near term and seasonal factors come into play.” CAR in its 2023 California Housing Market Forecast report, predicts a 7.2% drop existing single-family home sales in 2023.

How high will interest rates go in 2023? ›

By the end of the year, rates could rise to around 5.25% if the Fed maintains quarter-point hikes, but could land upwards of 6% if larger hikes are deemed necessary.

Are mortgage rates likely to go down? ›

Are mortgage rates expected to rise or fall during 2023? The consensus is that mortgage rates will gradually decline throughout the year, even if interest rates go up. Some predict that fixed rates could fall below 4 per cent by early 2024.

Will mortgage rates come back down? ›

The average interest rate for the benchmark 30-year fixed mortgage reached 7.08%, as of Monday. However, with the economy expected to cool and possibly dip into a recession, many recent forecasts expect rates to drop to 6% or below in 2024, including a Fannie Mae projection of 5.2%.

Should I buy a house now or wait for recession? ›

Lower Home Prices – There are fewer homebuyers during a recession. This low demand from the buy-side will cause home prices to fall. Therefore, you can typically get a better price on a home when buying during a recession. Less Competition – Fewer homebuyers means less competition and a more relaxed homebuying process.

How high are interest rates expected to go? ›

With inflation still rising and the cash rate forecast unclear, some senior economists are predicting that the cash rate may climb as high as 4.10% by mid-2023. Here's what we know so far.

Where will interest rates be in 5 years? ›

They provide insight into interest rate forecasts over 5 years. An interest rate forecast by Trading Economics, as of 2 March, predicted that the Fed Funds Rate could hit 5% in 2023, before falling back to 4.25% in 2024 and 3.25% in 2025.

Can house prices fall in 2023 according to expert forecasts? ›

Some regional markets are projected to see home price declines. In their latest forecast released in February 2023, they now predict that home values will fall in 326 of the nation's 895 regional housing markets between January 2023 and January 2024.

What is the property market outlook for 2023? ›

Advertisement. Huttons estimates that the supply of new private homes will pick up in 2023 to an estimated 10,000 to 12,000 units spread over 40 launches. This compares with 4,500 to 5,000 units in 2022 and 10,496 units launched for sale in 2021, according to Huttons.

What should you not do when staging a house? ›

Staging Mistakes to Avoid When Selling Your Home
  1. Starting without a plan. ...
  2. Listing a home before it's ready. ...
  3. Not taking professional photos. ...
  4. Neglecting simple home improvements. ...
  5. Making major renovations. ...
  6. Not removing or replacing dated décor. ...
  7. Hanging pictures too high or too low. ...
  8. Using non-neutral colors.

What will mortgage rates be in August 2023? ›

Most experts expect the base rate to settle around 4% to 4.5% by the end of 2023 and top fixed mortgage deals to fall to just under 4% within 18 months."

What will happen to mortgage rates in 2024? ›

'Mortgage rates could dip to 3% by the end of 2024'

We think they'll probably stay at that level for the remainder of the year before being cut in 2024."

Will the prime rate go down in 2023? ›

After home financing costs nearly doubled in 2022, some relief is in sight for potential homebuyers in 2023. The interest rate for a 30-year fixed-rate mortgage in the U.S. is expected to drop to 5.25% by the end of this year, according to a forecast by the financial services website Bankrate.

What causes mortgage rates to drop? ›

When inflation increases, interest rates increase so they can keep up with the value of the dollar. If inflation decreases, mortgage rates drop. During periods of low inflation, mortgage rates tend to stay the same or slightly fluctuate.

Should I fix for 2 or 5 years? ›

The longer the fixed term, the higher the risk that average rates fall below yours and you pay more than you'd otherwise have to, you also lose some flexibility. Based on the current economic predictions for 2023/24 a 2 year fixed rate could be a good idea if you are able to lock in a good rate before the end of 2022.

Will higher mortgage rates cause house prices to drop? ›

Home prices have soared since the early days of the pandemic. But high interest rates are pricing many would-be buyers out of the market, forcing some sellers to accept lower prices. "One positive of rising mortgage rates is that fewer buyers will be competing for the same homes," says Roberts.

Will mortgage rates go down in the next 5 years? ›

Mortgage rates started ticking up from historic lows in the second half of 2021 and increased over three percentage points in 2022. But rates have recently trended down, and they'll likely decrease further in 2023 and 2024. However, rates aren't likely to drop dramatically any time soon.

Should I sell my house before recession hits? ›

Before a recession hits, home prices are typically at an all-time high. This means that selling your home before a recession will result in a higher profit between the purchase price of the real estate and the sale price, which can increase your capital gains taxes.

How long do recessions last? ›

Recessions can last from a few weeks to several years, depending on the cause and government response. Data from the National Bureau of Economic Research shows that between 1854 and 2022, the average recession lasted 17 months.

Where will interest rates be in 2024? ›

The Fed's preferred inflation gauge is then expected to slide to 3.5% in 2023 vs. 3.5% prior estimate, followed by a 2.5% rate in 2024 vs. 2.3% prior estimate and then to 2.1% in 2025 (unchanged).

Will interest rates rise before 2024? ›

Westpac: Early 2024

Westpac predicts the cash rate will climb by 25 basis points in March, April and May to a peak of 4.10%. Westpac expects it will then remain at 4.10% for the remainder of 2023, before falling by 25 basis points to 3.85% by March 2024.

How long are mortgage rates expected to rise? ›

The average rate on a 5-year fixed mortgage is forecast to rise by 0.3% this year, rising further to 1.2% next year and 2.1% in 2024.

At what rate of interest will an amount double in 5 years? ›

According to the question, SI must be equal to 2 × P in order to make the final sum two times the original principal amount after 5 year. ∴ Required rate of interest is of 20%.

What will happen to mortgage rates in 2025? ›

Will mortgage interest rates go down in 2025? The 30 Year Mortgage Rate will continue to rise further in 2025. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 16.25%.

Where will mortgage interest rates be in 2025? ›

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.

What is the best date to close on a house? ›

The closing date you choose for your home purchase matters because it determines some of the expenses you pay at closing. For most home buyers, closing at the end of the month is ideal because you'll pay less interest upfront.

Will property prices fall in 2024? ›

On the home stretch. House prices in Australia will have fallen by up to 20% by the end of 2024, and NSW Transport Minister David Elliott's spear-throwing days are over: he'll leave politics at the March election.

Should I sell my home in 2023? ›

Bottom line. For most homeowners, now will be a better time to sell than 2023. That's especially true if you live in a market that saw rapid appreciation in recent years. Your real estate agent can help you understand pricing trends in your area, along with available inventory and demand.

Is 2023 a good time to buy investment property? ›

While we saw mortgage rates above 7% during the last months of 2022, 44% of economists and housing experts say the housing market will shift positively by the end of 2023. The talk of reduced mortgage rates by year's end will provide more opportunities to invest in real estate, whether for flipping or renting.

Will the market go up in 2023? ›

Most stock market forecasts for 2023 see moderate improvement. UBS targets a year-end 2023 S&P 500 at 3900 and KKR sees it at 4150. CFRA expects a 2.9% gain, which would put the S&P over 3900.

Is 2023 a good year to invest in real estate? ›

2023 is a balanced year for housing supply and demand. This is ideal for retail purchasers and rental property investors. No longer a “seller's” market. Rising interest rates raise the monthly mortgage payment, which reduces homebuyers and lowers property values.

What color is best to stage a house? ›

Stick to Light, Airy Neutrals

The best neutral paint colors for staging a home are light grays, beiges, and whites. Not only do these light neutrals stand the test of time, but they reflect light well and can make rooms feel larger.

What is the best bedding for staging a house? ›

In terms of bedding color, go neutral. Home stagers say those tones work best because they evoke a sense of relaxation better than bright colors do. “I love white linens and down blankets,” Tack says. “I'm also a big fan of adding lots of pillows.

Should you remove personal photos when selling house? ›

Some in the industry strongly advise their clients to remove all personal photos. After all, you want potential buyers to be able to visualize themselves living in the home and not be distracted by seeing personal photos of the current home owners' vacations, wedding photos, and family reunions.

What will mortgage interest rates be in 2026? ›

Mortgage Interest Rate Projected Forecast 2026. The 30 Year Mortgage Rate will continue to rise further in 2026. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 17.81%.

What will interest rates be in September 2023? ›

Yes, as expected, the Monetary Policy Committee (MPC) voted for a 0.5% increase, taking rates to 3.5%. This slows the pace of tightening from their 0.75% hike in November.

What is the projected prime rate for 2023? ›

Historical Data
September 30, 20236.24%
June 30, 20236.47%
March 31, 20236.50%
December 31, 20226.50%
21 more rows

Will house prices go up or down in 2023? ›

Zoopla said it expects house price falls of up to 5% in 2023. Property consultancy company JLL has forecast house prices in the UK will drop by 6% in 2023. While housing expert and buying agent Henry Pryor says he expects house prices to slip slowly through the year ending 2023 down by around 10%.

Will mortgage rates go down to 3 percent? ›

But we're not going back to 3 percent anytime soon, because inflation is not going back to 2 percent anytime soon.” It's important to have a realistic vision for what you can expect this year, and that's where the advice of expert real estate advisors is critical.

Will the interest rates go down in 2024? ›

Currently, the U.S. is coming in at 6.5%, according to the latest Consumer Price Index. In terms of a timeline for when rates will finally come down, that has been less clear. However, financial analysts with Goldman Sachs believe the Fed won't move the needle downwards until at least 2024, Business Insider reported.

Will property prices fall in 2023? ›

The organisation forecast that house prices would increase 2% in 2023 following a downward shift in activity and sentiment at the end of last year due to economic uncertainty and rising interest rates.

Is house building slowing down? ›

A regional analysis of construction contract awards has revealed a slowdown in the residential sector, questioning how effective government action has been at increasing housebuilding to its 300,000 per year target.

How long will high interest rates last? ›

How long will high interest rates last? Is there a chance they will go down in the next year or two? The truth is we don't know for sure. However, many industry experts believe within 18 to 24 months rates will be back to a more 'palatable' level.

What will cause mortgage rates to fall? ›

Mortgage rates and inflation go hand-in-hand. When inflation increases, interest rates increase so they can keep up with the value of the dollar. If inflation decreases, mortgage rates drop. During periods of low inflation, mortgage rates tend to stay the same or slightly fluctuate.

What will happen to mortgage rates 2024? ›

The Bank Rate in turn impacts the rates that lenders use to set mortgage rates. In its fiscal forecast, published in November 2022, the OBR predicted that the Bank Rate would rise from 1.6% in Quarter 3 2022 to 4.8% in Quarter 3 2023 and 4.5% in Quarter 3 2024.

What will interest rates be in 5 years? ›

They provide insight into interest rate forecasts over 5 years. An interest rate forecast by Trading Economics, as of 2 March, predicted that the Fed Funds Rate could hit 5% in 2023, before falling back to 4.25% in 2024 and 3.25% in 2025.

What will mortgage rate be in 2023 2024? ›

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.

What will mortgage rates be in 2023 2024? ›

The Mortgage Bankers Association: The group expects the 30-year fixed mortgage rate will average 5.2% in 2023. In 2024 and 2025, mortgage rates could average 4.4%.

How long until interest rates go down? ›

Prediction: Rates will drop

At the end of 2022, inflation was 6.5% compared to 7.0% in 2021. Lower inflation, smaller interest rate hikes by the Fed, and growing recession fears will push rates down even further in February.”


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