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Forecasting Mortgage Rates in 2023

Forecasting Mortgage Rates in 2023, South Orange County Realtors Penny & Don Pattillo

Want to know more about the direction of mortgage rates in 2023? Let’s break it down. The housing market in 2023 has experienced an unexpected shift, with a shortage of available homes and an influx of buyers, resulting in bidding wars and sales prices above asking prices. Experts had anticipated falling home values due to high mortgage rates; however, these rates have had an unexpected impact, causing homeowners to stay put due to their locked-in, low, monthly fixed mortgage payment. As a result, the inventory has dwindled, and the housing market has heated up substantially since January. So what is the forecasted direction of mortgage rates for the rest of 2023?

While experts have had a tough time anticipating the direction of mortgage rates, they are closely tied to inflation, and the trend reveals that inflation is slowly falling. The Federal Reserve, to combat inflation, has increased mortgage rates in 2023 at its fastest pace since 1981. However, the collapse of several banks in March, including Silicon Valley Bank, Signature Bank, and Silver Bank, exposed pressures on banking, and the outlook for mortgage rates changed. Many experts are now predicting a U.S. recession between the third and fourth quarters of 2023.

Mortgage rates typically fall when the economy slows, especially during a recession. Investors look to park their money long-term with safe investments, government bonds, and mortgage-backed securities (bundled home loans). As more investors flood these long-term investments, their rate of return drops, and mortgage rates drop. According to the average projection from Fannie Mae, the Mortgage Bankers Association, and the National Association of REALTORS, mortgage rates are anticipated to drop to 6.33% during 2023 Q2, drop further to 6.07% during 2023 Q3, and then drop below 6% to 5.79% during 2023 Q4.

How Do The Mortgage Rates in 2023 Really Play Out?

Let’s run a quick scenario for you: For a $1 million home with 20% down, the payment was at $5,322 just before the bank failures at the start of March when rates exceeded 7%. It has now dropped to around $5,057 today, with a rate of slightly less than 6.5%. This is a savings of $265 per month or $3,180 annually. At 6%, the $4,796 monthly payment becomes a monthly savings of $526, or $6,312 per year, compared to 7%. All in all, you can see just how significant of a role these rates play in determining one’s purchasing power. However, it is important to note that here in Orange County we’re seeing buyers back out in an aggressive search for their homes, and this time around, mortgage rates are not holding them back.

In summary, the housing market in 2023 has seen a shift due to unexpected effects from high mortgage rates, causing homeowners to stay put and leading to a shortage of available homes. Experts predict a U.S. recession between the third and fourth quarters of 2023, leading to a drop in mortgage rates to below 6% by the end of the year. This drop could result in significant monthly and annual savings for homeowners, making homeownership more affordable for many Americans. It is our goal as your trusted advisors to keep you informed and educated on the latest here in Orange County. Want to schedule a time to meet with us to discuss what this could mean for your 2023 plans? Reach out today.

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