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What’s Ahead for Homebuyers in 2023?
Tony Weick Bell Bank Mortgage President
As we look ahead into 2023, it’s important to peek into the past to understand where the industry is today and consider the trends that will continue to play out over the next year. It’s clear, things are very different than they were a year ago. At the start of 2022, there was a continued feeling of getting “back to normal” as people became more comfortable with what the new normal would be. For the mortgage industry, the tide was beginning to turn after an extended run of hyperactivity. Little did anyone know the headwinds were only going to become more severe as the year continued.
It didn’t take long to realize 2022 was going to be a year of change and reversal.
Economic Factors
As we entered 2022, signs indicated previous fiscal policies, which had helped families and the economy get through pandemic impacts, were about to change. These strategies, while needed at the time, had also contributed to an “overheating” economy, resulting in rapid inflation. In an attempt to combat the concerns, in March the Federal Reserve made its first in a series of fed funds rate hikes — from near zero to above 4% by year-end. While the fed funds rate does not directly impact mortgage rates (which are more closely tied to the 10-year Treasury yield), they do typically trend in a similar direction.
The Fed also significantly impacted mortgage rates and the industry by:
• Curbing asset purchases in the bond markets
• Reducing its balance sheet size
After years of buying bonds and mortgagebacked securities, the Fed significantly reduced its involvement. By removing itself as a major buyer during a time of slowing mortgage activity, rates were driven even higher.
Interest Rates
We started 2022 with rates in the low 3% range — up slightly from historic lows. Due to economic factors, by mid-year, rates had risen at a historic pace, and by late fall, mortgage rates reached the 7% range — the highest level in more than 20 years (though still considered low when looking at extended history). This was a year of extreme volatility for the mortgage industry.
Now, the major question is whether we’re heading into a recession. While opinions vary, many believe it will happen — the only unknowns are how severe and for how long. Typically, when there is a recession, mortgage rates drop.
Many economists say mortgage rates either peaked in late 2022 or will peak in early 2023, and then moderately decrease throughout the year into 2024. Does that mean we’re returning to the historically low ranges we experienced over the past couple years? While no one believes that is going to happen, many expect to see rates in the high 5% range, continuing to trend lower throughout the year. As affordability has become a major challenge for many dreaming of homeownership, a rate decrease would be a welcome trend.
Many economists say mortgage rates either peaked in late 2022 or will peak in early 2023, and then moderately decrease throughout the year into 2024.
