Mortgage Rates and Home Sales in 2023

Mortgage rates expected to fall

Last month, forecasters at the mortgage giant were predicting mortgage rates would peak at 7 percent during the first three months of 2023 before beginning a steady two-year decline but not falling below 6 percent until late 2024.

In their December housing forecast, released Monday, forecasters at the mortgage giant said they think rates on 30-year fixed-rate loans peaked at 6.6 percent during the fourth quarter of 2022 and could dip below 6 percent by the first quarter of next year. In a Dec. 19 forecast, economists at the Mortgage Bankers Association projected rates will fall below 6 percent by the second quarter of 2023 and back into the 4 percent rate in 2024.

Source: Fannie Mae December 2022 housing forecastMBA housing forecast.

When will home sales bounce back?

“With long-run interest rates pulling back significantly over the past month, and a consequently lower mortgage rate forecast, our latest outlook included a modest increase to our home sales forecast,” Fannie Mae forecasters said. “We now expect total home sales in 2022 to be 5.72 million units, up from 5.67 million in our prior forecast.”

Under this model, 2023 outlook isn’t much better than 2022.

“We expect housing to continue to slow, even though mortgage rates have come down recently,” Duncan said. “Home purchases remain unaffordable for many due to the rapid rise in rates over the last year and the fact that house prices, though certainly slowing and in some places declining, remain elevated compared to pre-pandemic levels.”

“With a recession predicted beginning in the first quarter of 2023, the ESR Group notes as plausible a scenario in which the Federal Reserve begins once again cutting the federal funds rate in mid-2023,” Fannie Mae economists said.

Considering this, 2024 looks cautiously better for real estate sales.

What are other sources saying?

Despite lingering economic shocks left over from the pandemic, inflation, mortgage rates and overall home affordability are likely to improve in 2023, setting up a housing market with higher sales next year, according to a senior economist, Dr. Orphe Divounguy, from real estate behemoth Zillow. “I believe, especially with the kind of economic data we’re getting right now, that the housing market affordability will stabilize in 2023 and the housing market will end up in in much better shape towards the end of next year,” Divounguy said at at Inman’s Connect Now event recently. 

“My optimism comes from the fact that household financial obligations as a share of income remain very, very low,” he said. “So households are in a relatively good financial position when you compare that to anytime before the pandemic. So you have households that are still kind of weathering this inflation storm very well. At the same time, we know inflation may have already peaked. It’s coming down.”

He said he expects Midwestern markets that are relatively more affordable to see less of a slowdown in sales than expensive coastal markets.

BOTTOM LINE ABOUT THE HOUSING MARKET IN 2023

If your life is dictating a move, move. Don’t let mortgage rates or the economy paralyze you. Make a game plan and buy or sell based on what will suit your life for the years to come. 

 

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