2023 Mortgage Forecast: Rates expected to fall by end of 2023

If you are looking for Tampa homes for sale, as per predictions from some of the leading real estate economists in the US, mortgage rates are expected to decrease this year due to receding inflation and the possibility of a mild recession in the US economy. This projection follows a year of record-breaking annual gains in mortgage rates in 2022.

The decline in mortgage rates could potentially entice back homebuyers who were previously priced out of the market. However, industry experts caution that housing affordability will continue to be a key concern. Despite the dampened demand caused by higher borrowing costs, the ongoing supply shortage has sustained home prices. Furthermore, even with an expected improvement in inventory in the coming months, housing supply remains below pre-pandemic levels.

It is important to consider where mortgage rates are headed in 2023 and how this may impact the housing market overall.

NAR & Realtor.com

According to senior economists from the National Association of Realtors and Realtor.com, mortgage rates are expected to move in opposite directions in 2023. Nadia Evangelou, director of forecasting at NAR, suggests that the average 30-year fixed mortgage rate will likely stabilize at 5.7% for the year, dipping below the 6% threshold during spring and summer. Evangelou attributes this trend to easing inflation and the Federal Reserve’s implementation of smaller interest rate hikes.

On the other hand, Realtor.com’s housing forecast predicts that mortgage rates will average 7.4% for the year. While the chief economist, Danielle Hale, acknowledges that the forecast could overestimate rates, she believes it still falls within the realm of possibility. Hale suggests that there is still a risk of rates climbing since the Federal Reserve has indicated that there hasn’t been enough improvement in inflation.

Redfin’s Housing Outlook

According to Redfin’s 2023 Housing Outlook, the average homebuyer’s mortgage rate this year is expected to be around 6.1%, with the 30-year fixed rate declining throughout the year and ending the fourth quarter around 5.8%. Taylor Marr, Redfin’s Deputy Chief Economist, notes that recent data on cooling inflation and a tempering job market suggests that rates are now on a more downward trajectory than previously anticipated, and could be below 6% by the end of the first quarter. Despite this, the spread between the 10-year Treasury yield and the 30-year fixed mortgage rate remains wide at around 260 to 280 basis points, compared to the typical spread of 180 basis points. However, Marr expects this spread to normalize by the end of the year as uncertainty with inflation decreases, even in the face of a possible recession. 

According to industry forecasters interviewed by U.S. News, mortgage rates are expected to begin the year higher but decline by year-end due to the belief that inflation has peaked and the Federal Reserve is slowing the pace of its benchmark rate hikes. The central bank’s efforts to fight inflation, such as selling off mortgage-backed securities and Treasury bonds last year, also put upward pressure on mortgage rates in 2022. Although there was a notable surge in the 30-year fixed rate last year, current economic indicators suggest the possibility of a corresponding downturn in 2023. The Fed’s monetary policy will largely depend on inflation data, and if inflation continues to decline as expected, the central bank will be cautious with raising interest rates and selling Treasuries, which could keep mortgage rates in check. However, if inflation resurges, the Fed may again tighten its monetary policy, which could push mortgage rates higher.

Zillow

Orphe Divounguy, Senior Economist at Zillow, states that market movements are expected to occur before and after the monthly inflation report, as it is what influences the yield on Treasury and determines the Federal Reserve’s monetary policy. Divounguy believes that inflation will decrease due to the slowing of wage growth and the balance between supply and demand. According to him, the rental market’s declining asking rents signal that inflation will likely continue to slow, but he cautions that supply shocks or climate disasters may occur.

However, not all economists share Divounguy’s confidence in the softening of inflation. Danielle Hale, Chief Economist at Realtor.com, emphasizes the importance of measuring not only current inflation but also how consumers perceive future inflation. While median one-year inflation expectations fell to 5% in the December Survey of Consumer Expectations, which is the lowest level since July 2021, inflation is still running at an annual pace of 6.5%. Hale expects inflation to be a bit stickier than forecasted in the first half of the year as incoming data is analyzed. She cautions that unless inflation improves with the same momentum as expected, there is a risk of higher-than-expected inflation reports.

Key Recommendations for Prospective Homebuyers in 2023

According to Hale of Realtor.com, while it is impossible to be certain where mortgage rates are headed, home shoppers can focus on factors within their control such as setting their budget, determining their essential home requirements, and how to adapt to fluctuations in mortgage rates. On the other hand, Divounguy of Zillow suggests that timing the housing market is not a wise strategy, as the key is to find a home that meets one’s needs since it’s a long-term investment. Additionally, Marr of Redfin highlights the advantages of buyers’ bargaining power, with 42% of deals getting concessions such as seller-paid rate buy-downs during Q4 2022. By playing the market wisely, some buyers can find good deals.

Buyers Will Get Some Leverage

According to Lindsay McLean, co-founder and CEO of HomeLister, the real estate market is currently favoring buyers. However, sellers still have a significant amount of control. As mortgage rates rise and affordability decreases, sellers may need to adjust their expectations to align with the shifting market, thereby giving buyers more leverage. Although this trend is expected to continue, McLean believes that the market will eventually become more balanced than it has been in past years. Despite the fact that buyers are now able to make purchases without waiving contingencies and sellers are offering concessions, some sellers still have low-interest-rate mortgages and are not feeling pressure to sell, which may result in them holding out for their desired offers.

Siven Premier Real Estate is a distinguished real estate agency that has established a prominent position within the Tampa Bay marketplace. Our agency provides a comprehensive suite of integrated services that are customized to address the varied requirements of our clients. Our team comprises proficient and seasoned Realtors who possess a profound knowledge of the complexities involved in real estate transactions.

We extend a warm invitation to avail yourself of our exceptional real estate services in Florida. For more information on some of the finest Tampa homes for sale, we encourage you to browse through our website or contact us directly at 813-330-0084.