Mortgage Rates Expected to Surge Higher in 2023

Mortgage rates reversed their downward trend this week, increasing for the first time in a month. The 30-year fixed rate averaged 6.77%, up from 6.65% the week prior. Fixed mortgage rates increased across all home loan products, while adjustable mortgage rates stayed about the same.

Here are the current average mortgage rates, without discount points unless otherwise noted, as of Dec. 15:

30-year fixed: 6.77% (up from 6.65% a week ago).

20-year fixed: 6.62% (up from 6.53% a week ago).

15-year fixed: 6.06% (up from 5.98% a week ago).

10-year fixed: 6.12% (up from 6.03% a week ago).

5/1 ARM: 5.46% (up from 5.43% a week ago).

7/1 ARM: 5.57% (equivalent to 5.57% a week ago).

10/1 ARM: 6% (down from 6.01% a week ago).

30-year jumbo loans: 6.81% (up from 6.66% a week ago).

30-year FHA loans: 6.06% with 0.07 point (up from 5.96% a week ago).

VA purchase loans: 6.19% with 0.05 point (up from 6.06% a week ago).

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Indicator of the Week: Nobody’s Housing Market

Realtor.com’s newly released 2023 housing market forecast is a mixed bag for buyers and sellers alike, calling for sustained home price growth despite higher mortgage rates, and sluggish home sales despite rising inventory.

“If home shoppers and sellers have unrealistic expectations, they could find themselves in a stalemate in the year ahead,” Danielle Hale, chief economist at Realtor.com, says in the report. “The 2023 housing market could become a ‘nobody’s market,’ not friendly to buyers nor to sellers.”

Here are some of Realtor.com’s noteworthy housing market predictions for 2023:

— Fixed 30-year mortgage rates will average 7.4%, modestly retreating to 7.1% by year-end.

Sales prices of existing homes (in other words, minus new construction builds) will continue to grow, but at a slower pace of 5.4%. That’s compared with the breakneck 17% home price growth seen in 2021.

— Existing home sales will retreat 14.1% next year to 4.53 million, well below the historical average of 5.27 million between 2013 and 2019.

— Existing housing inventory will increase by an incredible 22.8% in 2023 but will still lag behind 2019 pre-pandemic levels. The inventory of homes for sale grew 4% in 2022 after falling 19.4% in 2021.

— Single-family housing starts for new construction will decrease by 5.4% to 900,000, which is about on par with the 2013-2019 historical average level.

[Compare: Mortgage and Refinance Rates in Your Area.]

Not Quite a Buyer’s Market …

Weak homebuying demand will continue to bring some much-needed balance to the housing market in 2023, but persistent affordability challenges will remain a hurdle for homebuyers. It’s unreasonable to declare a buyer’s market at a time when mortgage rates — and monthly payments — have doubled since 2021, according to the report.

Even though we’re far removed from the cutthroat seller’s market during the height of the pandemic, Hale says that “a moderation in home price growth will not be enough for the housing market to be a buyer’s bonanza” with mortgage rates at 7% and higher. For historical context, mortgage rates averaged 4% between 2013 and 2019.

The good news for homebuyers — especially for those who can afford to buy a house in cash — is that inventory is expected to greatly improve in 2023 by an astonishing 22.8%. Higher housing inventory means buyers will have more homes to choose from, fewer bidding wars and more time to make a decision.

Still, the number of homes for sale will likely remain below pre-pandemic 2019 levels despite the double-digit inventory growth. There are a few contributing factors for this: Bleak homebuilder sentiment has led to insufficient new home construction, and homeowners have little incentive to sell if they have a sub-3% mortgage rate from 2021.

And since inventory is still somewhat constrained, home sales prices are unlikely to fall nationally next year. Of course, the exact home sales price trends will vary from one market to the next.

[READ: How to Get Approved for a Mortgage]

… But No Longer a Seller’s Market

Prospects don’t fare much better for sellers in next year’s housing market. With growing inventory and shrinking demand, fewer buyers will be competing for a wider supply of homes for sale. Still, sellers can be successful in 2023 — “as long as they approach with reasonable expectations that are very different from what was the norm less than a year ago,” Hale says.

When mortgage rates were at record lows in 2021, it was possible to sell a house for well over the list price, often through a cash deal, without any contingencies. But the time of frenzied bidding wars has passed, and Hale says that sellers can expect longer sales timelines and more negotiations with buyers, such as price cuts, home repairs and interest rate buydowns. Sellers should also expect more contract stipulations, such as home appraisal, financing and inspection contingencies.

The silver lining for sellers is that home price appreciation is expected to continue through the next year. Realtor.com predicts that the median price of existing single-family homes will increase by 5.4% in 2023. That’s modest compared with the double-digit growth of the prior two years, but it certainly doesn’t signal a housing market crash that would force homeowners to sell at a loss.

More from U.S. News

Mortgage Rates See Largest Monthly Decline Since 2008

Mortgage Rates Sink as Fed Plans to Slow Rate Hikes

Mortgage Rates Fall Slightly Ahead of Thanksgiving

Mortgage Rates Expected to Surge Higher in 2023 originally appeared on usnews.com

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