Mortgage Rate Forecast For 2023 (2024)

Mortgage rates continue their upward trajectory amid heightening economic uncertainty, edging closer to 7%.

After starting the month on a downward trend, rates reversed course in the second half of May in the wake of another Federal Reserve interest rate hike, regional bank turmoil, debt ceiling drama and mixed economic data.

The 30-year, fixed-rate mortgage averaged 6.79% for the week ending June 1, according to Freddie Mac, a jump of 22 basis points from the previous week. A basis point is one-hundredth of one percentage point.

What’s more, Mortgage Bankers Association (MBA) reported even higher rates. The average contract rate for 30-year, fixed-rate conforming loans (loan balances at or below $726,600) hit 6.91% for the week ending May 26, the highest rate since November 2022, according to the MBA. In some cases, lenders quoted rates above 7%.

Consequently, rates have surpassed where they started in 2023.

Nonetheless, housing market watchers continue to hold out hope that mortgage rates peaked last fall and will resume their steady decline, assuming inflation continues to cool, the Fed backs off on rate hikes and Congress raises the debt ceiling limit.

Mortgage Rate Fluctuations Persist Amid Economic Uncertainty, Fed Policy Goals

Rates for home loans remain caught in a tug-of-war between high inflation and the Federal Reserve’s actions to rein in inflation, which often indirectly pushes long-term mortgage rates higher.

The Fed continued its efforts to dampen consumer spending towards attaining its 2% inflation target when it raised its federal funds rate—the borrowing rate for commercial banks and credit unions—by 25 basis points at its May meeting.

An indirect impact of this 10th consecutive rate increase is a 30-year, fixed mortgage rate over 2% higher since the Fed began rate hikes in March 2022.

Now Fed watchers are hoping for a rate hike pause when policymakers meet in June.

However, while the minutes from the Fed’s May meeting revealed that officials were in general agreement that the need for more rate hikes “had become less certain,” the country is still experiencing a robust job market, near-record low unemployment and still-overheated inflation, all of which could prompt the Fed to hike again if similar readings recur.

“[I]n my view, data since the last meeting of the Federal Open Market Committee (FOMC) has not provided sufficient clarity as to what we should do with our policy rate at the next meeting,” said Federal Reserve Governor Christopher Waller, at a recent event. “[W]hether we should hike or skip at the June meeting will depend on how the data come in over the next three weeks.”

Expectations that the Fed will raise interest rates by another 25-basis points jumped roughly 48% between April 26 and May 26, according to the CME FedWatch tool.

However, the recent failures of three regional banks have led to increased credit tightening, which Fed Chair Jerome Powell has acknowledged could potentially end up doing some of the Fed’s work by functioning similarly to a rate hike.

So what’s the best strategy for prospective homebuyers in this uncertain economic climate?

“Be prepared to jump on a dip in rates,” says Robert Frick, ​​corporate economist at Navy Federal Credit Union. “But only if you have a property in mind that fits your budget.”

Mortgage Rate Predictions for June 2023

Here’s how other experts predict market conditions will affect the 30-year, fixed-rate mortgage in the coming months:

• Freddie Mac chief economist Sam Khater. “[W]ith the rate of inflation decelerating rates should gently decline over the course of 2023.”
• Fannie Mae. 30-year fixed rate mortgage will average 6.4% for Q2 2023, according to the May Housing Forecast.
• National Association of Realtors (NAR). “[F]orecasts that … mortgage rates will drop—with the 30-year fixed mortgage rate progressively falling to 6.0% this year and to 5.6% in 2024.”
• First American deputy chief economist Odeta Kushi. “I think it’s reasonable to assume that rates will come down a bit in the second half of the year and stabilize if the Fed takes its foot off the monetary-tightening pedal.”
• Bank of America head of retail lending Matt Vernon. “Bank of America Global Research expects mortgage rates to fall to 5.25% by year-end.”
• 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.”
• Mortgage Bankers Association (MBA) chief economist and senior vice president of research Michael Fratantoni. “Our forecast is for a 30-year mortgage rate to be closer to about [5.5%] by the end of this year and drop a little lower next year.”
• Rinaldi Group president Stephen Rinaldi. “[R]ates will begin [to] slide into the summer, beginning a slow but relatively steady lowering of interest rates.”

The U.S. Averts a Default: What This Means for Mortgage Rates

After getting the green light from the House, the Senate passed the debt ceiling bill to suspend the U.S. debt limit, allowing the federal government to continue to accrue debt to fund its existing obligations—such as Social Security, Medicare benefits and tax refunds—until January 1, 2025.

With President Biden signing the bill into law June 3 just ahead of the deadline when the federal government would have run out of cash, the U.S. averts its first-ever default.

Even so, as the default deadline approached, the escalating debt ceiling drama generated jitters among housing analysts.

“Although the probability of a default remains low, even the fears and panic related to a potential government default could cause creditors to ask for higher interest rates from the U.S. Treasury, resulting in a significant increase in various borrowing costs, including mortgages,” said Jiayi Xu, economist at Realtor.com, in an emailed statement.

Other experts sounded the alarm that the housing market would experience a severe shock if the country defaulted—including interest rates skyrocketing over 8%, according to Jeff Tucker, senior economist at Zillow.

However, it appears the market will now avoid that doomsday mortgage rates scenario.

“Yes, we are all sleeping a bit easier now,” says Mark Fleming, chief economist at First American Financial Corp. “Essentially, a huge source of market uncertainty has likely been removed, and the housing market likes certainty.”

Though most economists were hopeful that Congress would prevent a default, mortgage rates reacted to the recent uncertainty, moving upward with the 10-year Treasury yield, which indirectly impacts fixed-rate mortgages.

“Mortgages are loosely benchmarked to the 10-year Treasury yield, which tends to rise as people seek safer assets,” says Fleming.

After hitting 3.5% on May 15, the 10-year Treasury yield rose to 3.83% on May 25, with the average weekly 30-year fixed mortgage rate increasing by 22 basis points concurrently.

Despite the debt bill passing, some experts warn mortgage rates may remain elevated, at least in the short term.

“Once the deal is reached, the U.S. government is expected to quickly increase issuance of Treasury bills, which has the potential to cause short-term liquidity challenges at banks, as businesses and households may reallocate their funds towards higher-yielding and relatively safer government debt,“ said Xu.

To attract depositors, Xu noted that banks may need to raise interest rates.

“This could lead to further rate increases across various loan products offered by banks, including both business loans and personal loans.”

Is 2023 a Good Time To Refinance?

Over 40% of U.S. mortgages originated in 2020 and 2021 when mortgage rates were at record lows. There were also some 14 million mortgage refinances during the same time. If you were lucky enough to secure a mortgage then, chances are 2023 is not the ideal time to refinance.

Even so, anytime rates pull back, more people tend to apply for mortgages. With rates still substantially higher than a year ago, however, purchase and refinance applications remain stuck near their lowest level since the 1990s, according to MBA data.

While refinancing options can lead to a lower monthly payment, not all of the options yield less interest over the life of the loan.

“Remember that just because you can get a lower rate, doesn’t mean you should immediately refinance,” says Matt Vernon, head of retail lending at Bank of America. “You may be paying a lower monthly mortgage, but you may have to also extend the life of your loan and refinancing could cost you more in interest.”

For example, refinancing from a 5% mortgage with 26 years left on it to a new, 30-year mortgage with a 4% rate will cause you to pay more than $13,000 in additional interest.

Before shopping around for a lender, you can find out how much you could save using a mortgage refinancing calculator.

“To make refinancing worthwhile, consider how the closing costs and the breakeven point—the time it will take for you to recover the money it costs to refinance—will affect your overall finances,” says Vernon. In other words, figure out how long you plan on staying in your home as the closing costs can eat up your savings if you sell shortly after refinancing.

Current Mortgage Rate Trends

The average mortgage rate for a 30-year fixed is 7.12%, nearly double its 3.22% level in early 2022.

The average cost of a 15-year, fixed-rate mortgage has also surged to 6.55%, compared to 2.43% in January 2022.

In the current environment, ARMs might be more affordable than those with fixed rates. The latest average for a 5/1 ARM was 6.04%.

Current Mortgage Rates for June 2023

Current Refinance Rates for June 2023

The current average rates for mortgage refinances are:

• 30-year fixed: 7.21%
• 15-year fixed: 6.75%
• 30-year jumbo: 7.32%
• 5/1 ARM: 5.96%

What Do Current Rates Mean For Refinancing in 2023?

After kicking off 2023 at 6.48%, mortgage rates were topsy-turvy throughout Q1—and the wild swings have continued into Q2.

Rates embarked on a downward trend at the beginning of May only to reverse course, with the most recent 30-year fixed rate rising from 6.57% to 6.79%—higher than the 6.48% mark where the year started.

Though refinance applications rose for the first two weeks in May, volume retreated the final three weeks of the month. Refinance applications were down 7% for the week ending May 26, according to the MBA. The MBA also notes that refinance activity is 45% lower than last year when rates for the 30-year fixed hovered at a little over 5%.

“Most homeowners still have rates significantly lower than current levels, leaving only a small pool of borrowers with an incentive to refinance,” said Joel Kan, vice president and deputy chief economist at MBA, in a press statement.

Despite ascending rates, 2023 could still be a good time for some homeowners to refinance.

“[I]f you purchased a home a few years ago and rates were higher than today’s market, you may benefit from refinancing–especially if your credit score has improved,” says Vernon.

Or you still may have personal reasons to refinance either now or soon. For example, perhaps you have an adjustable-rate mortgage (ARM) and want to refinance to a fixed mortgage to secure your current rate or nab a lower rate. Because ARM rates fluctuate after the fixed period ends, refinancing to a fixed-rate mortgage can provide more stability as you plan your financial future.

How To Get a Lower Mortgage Refinance Rate

The good news is that, despite elevated rates, there are methods you can employ to help you negotiate rates down enough that refinancing may make sense, especially if you bought a home between mid-October and early November last year when rates were at their pinnacle.

Because there are closing costs and fees associated with refinancing, many mortgage experts say refinancing only makes sense if you can snag a rate that’s at least 1% lower than your current rate.

Here are some actions you can take to whittle down your refinance rate:

• Get rate quote estimates from at least three lenders
• Ask lenders about waiving or reducing closing costs
• Negotiate with your lender to match the best deal
• Take steps to strengthen your credit score
• Save for a larger down payment
• Choose a shorter-term loan
• Lock in the lowest rate
• Buy discount points

Mortgage Rate Predictions for the Next 5 Years

While predicting mortgage rates for the next five years is a tall order, especially considering the unprecedented fluctuations over the past year, experts say the low housing inventory will be a key factor in where rates go over the long term.

“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, says Daryl Fairweather, chief economist at Redfin. “It’s still that affordability problem. That’s going to stay with us.”

As far as which direction interest rates go in the years ahead, Fairweather expects declines. However, the timeline for this downward trend remains uncertain.

“In every scenario, rates are going to come back down,” she says. “It’s just a matter of when.”

However, experts say there are considerations beyond just low inventory that could potentially impact rates and broader housing market conditions in the coming years.

“The big question over the next five years is whether there are exogenous shocks (such as the war in Ukraine) or a rapid change in consumer sentiment that results in far less economic activity,” says Thomas Booker, head of strategy for Candor Technology. “Over this period, I suspect affordability will continue to be a challenge but if consumers can remain employed and constructive on their future—housing will be just fine.”

What Affects Mortgage Rates?

There are a complex set of factors that impact mortgage interest rates, including broader economic conditions, the monetary actions of the Federal Reserve (to some extent) and inflation. However, long-term mortgage rates are directly impacted by the bond market. The rate you’re offered on a mortgage will also depend on the lender you work with, its business costs and your financial profile.

Demand for mortgages can also affect rates, pushing it higher as available capital for lending tightens. Conversely, when there’s less borrower demand—as we’re seeing now due to average interest rates hovering in the 6% to 7% range—lenders might consider offering more competitive rates or other incentives to attract borrowers.

How to Shop for the Best Mortgage Rate

Getting an optimal rate on a home loan can save you a significant amount of money over time. Here are some tips that can help you get the best rate possible for your situation:

• Keep your eye on rates. Mortgage rates are constantly changing. Keeping a close watch will make it easier to find and lock in a better rate.
• Check your credit. When you apply for a mortgage, the lender will review your credit to determine your creditworthiness as well as your interest rate. In general, the higher your credit score, the better your rate will be. To get an idea of where you stand, check your credit before you apply and dispute any errors with the appropriate credit bureau to potentially boost your score.
• Shop around and compare lenders. Consider options from as many mortgage lenders as possible to find the best deal for you. Prospective buyers have saved more than $1,500 over a loan’s term by getting two quotes from lenders, and saved roughly $3,000 when they sought five quotes, according to Freddie Mac.

Frequently Asked Questions (FAQs)