Mortgage Rates Forecast 2023
Mortgage rates are a big topic for consumers these days, and many people want to know what they mean. There are many different sources of information, from Fannie Mae and Wells Fargo to the Mortgage Bankers Association. Each one focuses on different aspects of the mortgage market. However, there is a consensus that interest rates will continue to rise.
Fannie Mae
In March, the Federal Reserve increased the benchmark interest rate to control inflation. This resulted in higher borrowing costs for consumers, but rates are expected to bottom out near historically low levels by the end of 2020. Currently, average rates are forecast to be 4.7% in the first quarter of 2023, and 4.4% in the fourth quarter of 2023.
The rapid change in mortgage rates has already affected the housing market, adding hundreds of dollars to monthly payments and shutting out some buyers. This is why Fannie Mae's mortgage rates forecast 2023 suggests a significant slowdown in home sales over the next year. The forecast is based on several assumptions, and the actual results could differ materially.
In addition to the slowdown in the housing market, Fannie Mae expects home prices to decline by about 1.5% by the end of 2023. The pace of home sales is expected to slow down even further, with the average monthly pace of sales for existing homes declining by almost a full percentage point from last year.
Although Fannie Mae's new forecast indicates a slowdown, it is not yet clear whether the economy will hit recession in 2023. The ESR group of Fannie Mae forecasts that the U.S. economy will enter a mild recession in 2023. It says that a combination of factors could push the economy into a recession by 2023. Nevertheless, the demand for rental units is expected to remain strong. Further, single-family home purchase affordability is at its lowest levels since 2006.
If the Fed fails to control inflation, the mortgage rates will remain high in 2023. While the Fed has limited control over mortgage rates, it has a major influence on MBS yields. With this influence, mortgage rates are expected to remain elevated until the end of the 2023 recession.
Wells Fargo
The latest Wells Fargo mortgage rates forecast calls for a 5.5% decline in home prices in 2023. These numbers are in line with recent forecasts from several other sources. The bank also expects the housing downturn to continue, with existing home sales declining by 5.5% and new home sales dropping by 10.5% next year. While the current slowdown in the housing market is a concern, it's not the end of the world. The housing slump has been ongoing for years and has already impacted home prices across the country.
A new report from the Mortgage Bankers Association predicts that rates will rise to 4.8% by year's end and 4.6% in 2024. This is based on a stable yield on the 10-year treasury note, which is closely tied to mortgage rates. The 10-year note is expected to hold at 2.8% through 2024.
While this forecast is very optimistic, the Fed is not yet at the end of its current rate-hiking cycle. According to Wells Fargo, there will be at least one more rate hike by the Federal Reserve this year. The Fed has already increased rates by 300 basis points this year. However, in 2023, the Fed is expected to slow its rate-hiking cycle and the benchmark rate will remain between 4.50% and 4.75%.
The latest report from the Wells Fargo Investment Institute suggests that the economy will continue to grow in the next year, but with a more modest rate. Meanwhile, Morgan Stanley has predicted that there is a 25% chance that the economy will contract in the next year. While the outlook for mortgage rates remains uncertain, the report says that the market will stabilize.
The rising mortgage rates are a symptom of a tight housing inventory. A lack of existing homes has forced builders to work overtime. While new home sales are forecast to grow by 2.3 percent this year, existing home sales will decrease by 5.6 million in 2023. Moreover, rising mortgage rates will hamper new home sales.
Yun
According to the latest Mortgage Bankers Association report, mortgage rates are expected to fall for at least another year, possibly into 2023. In addition, the MBA economists are predicting that the US economy will experience recession in the first half of next year, with tighter financial conditions and slower growth leading to higher unemployment and a slower pace of business investment. However, these predictions are not without caveats.
According to the MBA, mortgage rates will end 2023 around 5.4%, while the average 30-year fixed-rate mortgage currently sits at 6.94%. However, homebuyer demand will likely slow in 2023 due to the Fed's continued efforts to tame inflation. For this reason, the MBA is not expecting mortgage rates to fall by more than four percent during the year.
Although the Federal Reserve does not directly set mortgage rates, it establishes monetary policy and uses the federal funds rate, which is the short-term rate that banks charge each other, to determine mortgage rates. While the Federal Reserve has been cautious in raising rates, the forecast isn't impossible, since the mortgage market is already factoring in the possibility of a Fed rate hike. If that happens, mortgage rates will remain above their mid-2000s peak until at least 2023.
In the short-term, rising mortgage rates are already having an impact on homebuyers. According to the National Association of Realtors, a home purchase today costs 55% more than it did a year ago. In addition to hurting affordability, rising home prices are eating up wages, which make it difficult for people to buy a home. Yun also says that if these rising rates persist, the Federal Reserve will tighten monetary policy even more, resulting in a slowdown in the housing market.
Mortgage rates have been on the rise for the past several years. This is because investors have become more cautious about the economy and the Federal Reserve. They are also worried about inflation and have increased their interest rates. It is also worth noting that mortgage rates tend to follow the U.S. Treasury bond rate, which also reflects investor concerns. However, this year, bond yields experienced a rough patch during the Russian invasion of Ukraine and poor consumer spending.
Mortgage Bankers Association
The Mortgage Bankers Association recently released its outlook for mortgage rates in 2023. The association believes that rates will stabilize around 5.5% for the first half of 2023, but the remainder of the decade may see higher rates. This is a concern for consumers, who have probably already begun preparing for higher rates.
The association expects mortgage rates to fall to 5.4% by the end of next year, but warns that high interest rates will cause home prices to fall in many markets next year. The association's report also predicts that the Federal Reserve will drive the US economy into a recession in the first half of 2023.
According to the MBA's forecast, mortgage rates will average 4.8% by the end of this year and 4.6% by the end of 2024. In the short term, the association expects that rates will remain low - 4% in 2022, and 4.8% in 2023 - because yields on ten-year treasury notes will remain stable through 2024.
