Interest Rates in 2023 (The Housing Market)

The Current State of Real Estate and Mortage Rates

Mortgage Rates: The new year is a great time to look at the projections for real estate. With Mortgage rates increasing and Home prices increasing in some areas, buyers and sellers are feeling nervous this year. Currently, sales of previously owned homes dropped 7.7% in November to a seasonally adjusted annual rate of 4.09 million units, according to the National Association of Realtors reported. In the last ten years, this is reported to be the slowest we have seen homes selling in a decade! Also, the 30-year-fixed mortgage rate is now 6.63 at the time of writing this. Inflation is up to 7 percent, and Home Sales have also dropped 7.7%o in the month of November. With all these worrying facts regarding the Housing Market, Buyers and sellers want to know if Mortgage rates will continue to climb.

Will Mortgage Rates continue to climb in 2023?

Because Interest rates doubled in 2022, many people are wondering if these rates will continue to climb in 2023. Some people are saying they will continue to climb. Experts are saying that due to a potential recession, overall higher interest rates, and inflation, we could see interest rates in 2023 increase to 8.75 percent and 7.70 percent. Some experts confirm these predictions. “By the end of 2023, financial market participants expect the Fed to increase the target Fed funds rate by 175 to 200 basis points from current levels. That would translate into 30-year and 15-year mortgage rates at roughly 8.50 and 7.70 percent,” Robert Johnson, Professor at Creightons University of College of Business.

Another economic analyst has said the same thing for predictions regarding Interest Rates in 2023: On the other hand, Rick Sharga, who is executive vice president of Market Intelligence for ATTOM Data Solutions, predicts with the hope that in 2023 mortgage rates will indeed rise at first but then the rates will start to fall again, Rick estimates that after these Interest Rates fall, they will come down from 8.50. However, this all depends on the Fed’s ability to counter inflation and interest rates.

The Three possible scenarios for Interest Rates

Nadia Evangelou, a senior economist and director of Real Estate Research for the National Association of Realtors, predicts three possible outcomes for 2023 regarding Inflation and Interest Rates. In the first scenario, inflation will continue to climb, meaning that Mortage Rates will also continue to climb. In the second scenario, the consumer price index counters the Fed’s rate hikes, and this could result in stability within rates. For example, if the rates in 2023 rise to 8.5% due to inflation, the consumer price index would stabilize interest rates back to around 7%. In the Third Scenario, The Fed would raise interest rates causing inflation to decline, and the economy would fall into a recession. If this happened, rates would drop by 5%.

Listing your property in 2023

According to Economist Nadia Evangelou, she predicts that no matter which scenario, Mortgage Rates will have a huge impact on Home Sales. Here is a direct Quote from Evangelou. “Higher rates under scenario #1 could cause home sales to drop by more than 10 percent next year,” she continues. “In scenario #2, home sales drop by 7 percent to 8 percent. And in the third scenario, home activity may also drop further by more than 15 percent.” Nadia is not the only economist that agrees with these statements. Many other experts agree. Experts are saying that because Home sales slowed down so much in the last two quarters of 2022, this will most likely continue into 2023. Here is Another Quote from Economist Rick Sharga.

Sharga believes the number of sales will continue to slow, likely hovering in the 4.5 million range, with new-home sales at around 600,000.” Due to this, Home listings will not sell instantly whatsoever. Instead, experts are saying this increase in Mortgage Rates and Inflation will cause listings to take up to 30 days. The time it takes to sell a house could take two to three times as long in 2023.

What will happen to home prices?

Due to low inventory, experts say that home prices won’t drop in 2023 but rather stay at a flat rate. A Real Estate Market with higher interest rates will undoubtedly hurt home values. This is good for home buyers but terrible for individuals trying to sell their houses. Assuming that home prices ease, home buyers will emerge, and the all-cash home buyers and or low loan-to-value purchasers. These buyers are not affected as much by the interest rates and will likely benefit more than people buying houses with 15 or 30-year mortgages. The value of all homes in the U.S. is expected to decline at least at a moderate level.

The larger markets (the most expensive) will most likely see the biggest declines. Limited inventory and strong credit quality are things that could help with home prices declining even more. For the last two years, the housing market has been considered to be a “seller’s market” due to the high demand for buyers. Now that interest rates and mortgage rates are increasing, this could mean 2023 could be different. Economic experts say that this year could be a “Buyer’s Market” Some experts think the market will balance itself out and it will not lean toward a seller’s or buyer’s market.

What Experts are saying

Greg McBride, the Chief Financial Analyst for Bankrate, says this “affordability issues and economic worries will depress home buyer demand, and inventory of homes available for sale will remain limited. So it’ll continue to be more of a balanced market than tilting one way or the other.”

Because of the Pandemic, there has been a new spike in bidding wars in suburban areas along with smaller markets. This could be due to more demand for space and the increase in flexibility of people working from their homes. Nowadays, many corporations, businesses, and offices are back in full operation and full capacity. The idea is that if the more significant or larger markets can go back toward pre-pandemic levels, then this could drive demand up.

On the other hand, some experts say that the Housing Inventory will increase in 2023, resulting in homes becoming unaffordable because of high rates.

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