Will Mortgage Rates Go Down in 2023?
Mortgage rates just spiked to the highest levels of the year leaving home buyers and even home sellers in a panic about what’s going to happen in the future. What everyone wants to know is, will mortgage rates go down in 2023? Which is exactly what I’m going to discuss. In addition, what can you do as a home buyer in this market to deal with these higher rates.
Will Rates Go Down?
First off, will rates come down this year? Yes they will. Actually there’s 2 answers. The first answer is, yes you will see rates come down from they’re most recent peak and then you will see relatively lower rates by the end of the year. Most recently the average 30 year fixed rate mortgage popped up to 7.24% which technically is the highest it’s been since 2022 after the feds comments and unemployment data came out. However, since that peak we’ve also got encouraging inflation data come out that has already lead to a pullback in bond yields and mortgage rates.
So what can you expect for the remainder of 2023? Rates spiked up after the fed skipped their June rate hike and said they’d probably need to hike the fuds funds rate 2 more times in 2023. This was a problem because the market was hopeful that the fed would pause their rate hikes and hold rates steady, not just skip a rate hike and leave the door open for 2 more hikes. Then payroll numbers came out and blew the roof off market expectations, which was evidence of a labor market that is still hot and tight.
When all this was happening rates spiked up. We’ve seen this happen multiple times this year as we try to figure out where this market is going and we see the peaks, then the pullback.
When Will Rates Go Down?
We know the fed is going to keep rates higher for longer, we just don’t know how high and for how long. However, we do know why they’re keeping rates high and that’s because of high inflation and an ab tight labor market. Therefore you can get a good idea of where rates are going by looking at inflation. And inflation is going down. The recent dip in rates was because of the consumer price index data that came out which showed inflation was less than expected.
Not only is CPI coming down from it’s peak last year but so is the money supply which is why we had an explosion of inflation in the first place. We can also see supply chain pressures are easing. Prices for services are coming back down to reality. Even home price growth has cooled tremendously – still not negative for all you buyers out there.
Wage growth is still really high and unemployment is really low, which I don’t think you’ll find too many people complaining about. But as less jobs are being created and more people return to work, you’ll see wage growth come down and unemployment go up. Keep in mind that’s different than a bunch of people losing their jobs and foreclosing on their homes because I don’t see that happening – sorry to all the doomsdayers out there.
I think the safe bet is to assume that you’re not going to see 8, 9 ,10% mortgage rates and you will see rates pull back from over 7 % which they already have and settle closer to 6.5% by the end of 2023. Even in light of further fed funds rate increases which remain to be seen, but have essentially already been priced into the market. Of course if they end up not raising rates, you’ll see mortgage rates come down even more.
What Home Buyers Should Do
If you’re a home buyer I wouldn’t stop my home search just because of the news headlines about 7.5% mortgage rates because those rate peaks are short lived. If you are someone who has an accepted offer and needs to lock right now or during these rate spikes, do these 3 things: (1) Get your credit scores up if you can, (2) shop around for homeowners insurance, and (3) negotiate with the seller if possible to get seller paid concessions.
If something’s overpriced and not selling, there’s an opportunity to work with the seller and get a lower price or get some seller concessions but you won’t know until you ask. You do have to be patient and tune out the noise in this market, some of this is unchartered territory but you can also be that we’ll avoid a worst case scenario. Sorry to all the news channels and doomsdayers out there!