If you want to buy a home but don’t have the cash on hand for…
As of November 2022, mortgage rates have doubled since the beginning of the year, and rising rates have caused many potential homebuyers to pause their plans and wait for rates to cool down. But is a rate decline on the horizon? And are interest rates the only thing to consider when buying a home?
While no one can say for sure where mortgage interest rates are headed for 2023, the experts at New Way Mortgage feel that the new year will bring some relief for borrowers with more than just interest rates. But before we dive into our mortgage rate predictions, let’s recap the trends from the previous year.
2022 Mortgage Rates Recap
According to Freddie Mac, the average 30-year fixed rate mortgage was at 3.22% the first week of January, and the rate for a 30-year fixed rate mortgage sits at 6.375% the third week of November. The average 15-year fixed rate mortgage is sitting at 6.25% the third week of November.
At the beginning of 2022, when rates were just over 3% on a 30-year mortgage, a payment on a $475,000 mortgage would equal roughly $2,872. In November, with mortgage rates at 6.5%, that same payment equates to a loan amount of $360,000. But is rate the only thing to consider?
Multiple factors led to the overall rise of this year’s mortgage rates, and inflation is primarily to blame. But the only way to combat inflation is for the Fed to raise interest rates. And increased interest rates make borrowing more expensive, which could trickle down to create another rate hike.
Recent Fed Announcement
On November 2, 2022, the Federal Reserve announced a raise in the federal funds rate by three-quarters of a percentage point to a range of 3.75% to 4%. However, markets have reacted by decreasing interest rates across the board.
According to Aaron Clowes, founder and CEO of New Way Mortgage: “We just heard from the Fed, and although it wasn’t the best news, it wasn’t horrible. I would say the markets have been flat for mortgages. What the Fed said, especially on the heels of several months of bad news for mortgage rates, I’m going to take this as a win. It does appear that we’re going to continue to have market volatility, at least for the coming months, before we finally see rates start to come back down to reality.”
Watch Aaron’s full video below to hear more of his thoughts on the recent Federal Reserve announcement.
As a reminder, the Federal Reserve does not set mortgage rates, nor do its decisions directly drive mortgage interest rates. However, mortgage lenders keep a close eye on the Fed, and how the market interprets the Fed’s actions can affect mortgage rates.
2023 Mortgage Rate Predictions
Mortgages track the 10-year Treasury rate, and the recently announced federal funds rate change may or may not move the rate on 10-year Treasury bonds.
While no one has a crystal ball, according to Aaron Clowes signs are pointing toward reduced mortgage interest rates in the coming year.
“Why do I think rates are going to come down? Well, I say follow the money. And when you look at mortgage servicing rights—the fee that an investor pays for the right to collect a borrower’s monthly mortgage payment—they’re currently worthless on the present loan, and that’s part of the reason why rates are so high.”
Aaron explained further: “Why is the servicing worthless? Bond traders who set the rates in the market based on supply and demand for Treasury bonds know that rates will be lower in the not-so-distant future. And because of that, there’s no way they’ll pay a premium for the right to collect a monthly payment on a loan that will get refinanced or paid off when rates drop.”
Aaron’s full video, with his explanation of why he feels lower rates are on the horizon, can be viewed below.
Looking for another optimistic prediction for where mortgage rates are headed in the coming year? The Mortgage Bankers Association (MBA) has forecasted that mortgage rates would drop to around 5.4% at the end of 2023.
Other Things to Consider
Trying to time the market for buying a home based on mortgage rate trends could end up costing you more. Why? Simply put, there are additional things to consider.
While we’re experiencing higher interest rates from the beginning of the year, inventory is also up, buyer demand is down, home prices are starting to come down, days on the market are longer, and sellers are more willing to contribute concessions to get their homes sold. These are all good signs that favor homebuyers.
And it’s important to remember that a major rate drop will likely bring more buyers back into the market, and that could bring similar inventory challenges to what we saw in 2020 and 2021. Those years had multiple offer situations, buyers losing out on their dream homes, and bidding wars that drove up the price of real estate—so what we’re experiencing now is not all bad.
Considering that rate fluctuations are unpredictable, the best time to buy is when you are financially ready to do so. If you are ready to buy a home, consider the mortgage industry saying, “Date the rate, marry the house.” You can always refinance your mortgage when rates drop, but it may be hard to find your dream home if you wait.
When Is the Right Time for Me to Buy?
Generally, the right time to pursue homeownership is when you have stable employment, a solid credit score, and the financial means to make monthly mortgage payments and afford the monthly costs that come with homeownership (utilities, home maintenance, taxes, and insurance).
While homeownership can be a lucrative investment right out of the gate, first time homebuyers should not view buying a home as a short-term investment. Home equity is built over time, not overnight.
Regardless of how the housing market looks, the most important thing to consider is how the current rate impacts your monthly mortgage payment. If it fits within your budget and you’ve found the perfect property, then now could be the right time to purchase a home.
If you’re looking to finance a home purchase in the greater Sacramento area, the team at New Way Mortgage can help. We have access to competitive interest rates and a variety of home loan programs, including conventional loans, jumbo financing programs, VA loans, and FHA loans.
Give us a call or shoot us a text at 916-465-6639, and let us match you with the mortgage that makes the most sense for your unique homebuying situation.