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Between record-high home prices, mortgage rates, rising inflation and recession fears, home shoppers have been put through their paces this year. This has created more uncertainty heading into 2023 for many homebuyers seeking an affordable mortgage.
First-time homebuyers have been especially feeling the squeeze, as skyrocketing home prices and mortgage rates have diminished their down payment and buying power.
While housing market conditions are beginning to change for the better, albeit very slowly, keeping a close watch on the mortgage market—and any economic actions by the government—should be your main resolution for 2023 if you hope to snag the best mortgage for you.
How Inflation Will Impact Mortgage Rates in 2023
In its efforts to tamp down rising inflation, the Federal Reserve aggressively raised its benchmark federal funds rate throughout 2022. Though the Fed’s rate hikes do not directly impact mortgage rates, it does affect the bond market, which has a direct impact on mortgage rates.
“Until the Federal Reserve believes that runaway inflation is under control, it will continue to aggressively raise the fed funds rate, which will, in turn, continue to drive mortgage rates higher,” Rick Sharga, executive vice president of market intelligence at ATTOM, a leading curator of real estate data.
Charlie Dougherty, an economist at Wells Fargo, expects the Fed will roll out more rate hikes into 2023. However, he says the increases will be less aggressive compared to 2022.
Nonetheless, Dougherty and other experts project mortgage rates will remain high, at least during the first months of 2023.
“The economic consensus seems to be that there will be strong signs early next year that inflation is fading,” says Mark Fleming, chief economist at First American Financial Corp. But “all signs indicate more upward pressure on mortgage rates than downward in early 2023.”
When Will Be the Best Time to Get a Mortgage in 2023?
With mortgage rates hovering at record highs, home prices that have yet to normalize and uncertainty across the housing market, many shoppers have retreated from the market.
So, will 2023 be a better year to get a mortgage?
Regarding home prices, many housing experts say we will start to see more month-over-month declines next year.
“We now look for home prices to register year-over-year declines in 2023, with the national median existing single-family home price expected to fall 5.5% during the year,” says Dougherty. “That said, the long-standing shortfall in supply and strong underlying demand will ultimately limit the extent home prices depreciate.”
However, home depreciation will not be uniform across the housing market. Rather, there will be regional variations, with previously white-hot markets seeing extreme swings to the downside compared to less popular markets, says Dougherty.
Keep in mind that home appreciation has abnormally catapulted the past few years. The average sales price for a home jumped 45% to $542,900 by the third quarter of this year compared to the second quarter of 2020, according to the St. Louis Fed.
As for mortgage rates, some experts anticipate that the best-case scenario for a 30-year fixed rate will be roughly 5.5% by the end of 2023. Others expect rates to stay in the range of 6.5% to 7.5% throughout the year, with Freddie Mac predicting an average 6.4% in a recent forecast.
Related: Mortgage Forecast For 2023
Tips for Homebuyers in 2023
Given the ongoing fluctuations and uncertainties in the housing market, trying to time when to get a mortgage often requires more luck than skill. Real estate experts typically suggest buying the home that is right for you and your needs—and stay there for at least five years—rather than timing the market.
Nonetheless, there are still steps you can take now that will put you in a stronger position when you are ready to shop for a mortgage.
“Take the time to study and understand the market,” says Ward Morrison, president and CEO at Motto Franchising, the Denver-based company behind Motto Mortgage. “Also, be sure to research a variety of loan types.”
Here are some other ways you can be proactive:
- Understand your credit score. See if there are ways to improve your credit score. If you can raise your score, it will help you get a lower mortgage rate which means lower mortgage payments.
- Meet with lenders. Getting to know lenders and what loans you potentially qualify for will put you in a stronger position once you are prepared to purchase a home. Shop around online, by phone or in-person at a branch location to find the best mortgage lender for you.
- Review your financial situation. Review your monthly debt payments against your usual income to determine a comfortable monthly payment amount so you know how much home you can afford. You may discover you have to expand your search to locations with lower home prices.
- Use a mortgage calculator. Once you have a sense of the types of loans you qualify for, calculate your estimated monthly payments, punch in your numbers into calculators such as a 30-year fixed mortgage calculator, 15-year fixed mortgage calculator, FHA loan calculator or mortgage amortization calculator.
- Manage your money. Use this time to save money toward your down payment. The more you can put down on a home, the smaller the loan you will need and the less you will pay overall for a mortgage.