What Does The Mortgage Picture Look Like Going Into 2023?

What Does The Mortgage Picture Look Like Going Into 2023?

Buying a home is a complex process, and it's wise to consult your local mortgage broker to get answers to all your home buying questions.  

Shane Whitteker is the owner and chief broker at Principle Home Mortgage, a mortgage broker in State College, Pennsylvania. 

Why are mortgage rates going up? 

"Mortgage rates are dictated by the mortgage-backed securities market. We refer to this as the “Bond Market” in the mortgage world but that is not technically correct. Mortgage-backed securities are comprised of bundled mortgages that are sold as a group and purchased by investors,” Whitteker explains. “Depending on economic circumstances these mortgage-backed securities (MBS) sell for different prices. The higher the price, the lower the mortgage rates go. The lower the price, the higher the mortgage rates go. With higher inflation and the potential of a recession that really kicked off at the end of 2021 and the beginning of 2022 we saw the demand for MBS decrease. This decrease in demand drives the price down which causes mortgage rates to increase.” 
Another factor at work is that the The United States Federal Reserve (The Fed) has been increasing the base interest rate, which has caused mortgage rates to rise. A higher base rate means banks must pay more interest, which they must subsequently pass to their clients to keep their margins. 
Rising inflation and the Federal Reserve's efforts to contain it, which have indirectly raised rates, are battling it out for control over mortgage interest rates. 
Will rates go higher? 
Mortgage rates have increased this year, exceeding most analysts' predictions. This has resulted in fewer homebuyers applying for mortgages this year. 
Extreme mortgage rate highs and lows this year and those anticipated for next are primarily a result of the Federal Reserve's aggressive steps to control growing inflation. 
Rising mortgage rates have continued to reduce demand for homes, which has slowed sales and home price growth. By early November, the typical 30-year fixed-rate mortgage was hovering above 7%, significantly higher than the standard 3.22% at the beginning of 2022.  
As most economists anticipate mortgage rates to reach around 6% in 2023, the recent several years in which rates were below 4% appear to have ended. 

“I think we will see rates stabilize around 5 to 7 percent and I doubt they will decrease below that if the market is left alone to investors without the artificial influence of the Federal Reserve as a buyer,” Whitteker says. “Other inflationary factors like food cost, energy cost, etc. play a role as well. Energy is more policy related in how the prices are affected. It is difficult to predict policy related factors. In my opinion rates will stabilize in the next 12 months and may decrease in the next 2 to 5 years but not drastically. If the Federal Reserve starts selling off its holdings of MBS this could keep rates on the higher end for a decade or so.”  
When will rates go back down? 
Mortgage interest rates gradually increased from their historic lows in the second half of 2021. They have increased by more than three percentage points so far in 2022. 
But many predictions anticipate that rates will start to decline in 2023. According to experts' most recent projection, rates are currently at their highest point and will trend downward to 6.2% by the end of 2023. 
According to the Mortgage Bankers Association, rates could drop even more if there is a recession in the first half of 2023.  
Why will rates go back down? 
Whether mortgage rates will decrease in 2023 depends on the Federal Reserve's ability to keep inflation in check. 
Given that there is only a minor deceleration from the previous month's figures, the Fed will probably need to keep aggressively hiking the federal funds rate to see meaningful price reductions. 
Mortgage rates will probably decrease slightly when inflation slows, although Whitteker says to prepare for these rates being the ‘new normal’.  

“At some point yes, rates may decrease slightly,” Whitteker says. “However, consumers need to come to the realization that we are not going to see rates in the 2 to 3 percent range anytime soon, probably for decades to come.”  
When should I think about refinancing my mortgage? 
The general rule of thumb when deciding whether to refinance your mortgage is that lowering your current interest rate by 1% or more might be worthwhile due to the money you save. 
You can immediately increase the equity in your house by refinancing it at a cheaper mortgage rate. If interest rates have fallen sufficiently, it would be possible to refinance to decrease the loan term. 
Refinancing a mortgage is switching over your current loan for a new one, usually to get better terms or to achieve your financial objectives. 
The process of refinancing is comparable to that of applying for your initial mortgage. A lender will examine your financial situation to establish your risk tolerance and if you qualify for the best interest rate. 
Closing expenses associated with refinancing can influence whether acquiring a new mortgage is financially advantageous. Additionally, you should ensure you have enough equity in your house and can afford the increased payment. 

With current mortgage rates high, Whitteker recommends against refinancing – unless in certain financial situations. 
“If you have a mortgage with a low interest rate there is not much reason to refinance,” Whitteker says. “For the foreseeable future, I would advise clients to keep their low rate unless something happens that requires a change. Some examples could be divorce or financial problems that require a refinance.” 
What is a rate buy down? How does it work? 
Using a buy down mortgage financing strategy, the buyer can get a cheaper interest rate during the initial years of the loan.  
It is a means for a borrower to get a reduced interest rate by contributing more money at closing, resulting in a monthly payment typically based on an interest rate of 1% to 2% lower than the note rate. The "start rate" is commonly used to describe the buy-first-year down rate. 
Is buying down a mortgage interest rate worth it? 
The primary benefit of buying down interest rates is that, regardless of your credit score, you can get a lower rate on your mortgage loan. Lower rates can help you save money on your yearly interest payments and your monthly mortgage payments. 
How far can you buy your interest rate down? 
Your interest rate may be bought down by up to 1% to 2% to reduce your interest costs and achieve a cheaper payment in the first few years of the loan. Before deciding to do a rate buydown, you must compare your monthly savings with the time you wish to own the house. 
What is the mortgage picture moving into 2023? 

Some experts forecast the sector will stabilize in 2023 and enter 2024 with more stable interest rates, declining housing prices, and consistent home sales. 

In line with an updated prediction from the Mortgage Bankers Association, mortgage rates are anticipated to decline slightly in 2023. 

To get answers to all your mortgage related questions, contact State College’s mortgage broker Principle Home Mortgage at (814) 308-0959. 

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