Mortgage rates could level off this year

Chris Campos

Oh, the good old days of November 2012. If you were lucky enough to take out a mortgage then you were likely paying a record low interest rate of 3.35%. Or, if you were cursed by buying a house in 1981, you might be lucky to get an interest rate of 18.5%.

According to a report in Forbes, rates for home loans seemed to be on a relentless climb in 2022, now sitting at double what they were a year ago. But a steady decline in rates the past two months have convinced more economists that rates could level off through early 2023, barring an economic downturn.

The average 30-year, fixed-rate mortgage was 6.15% for the week ending Jan. 19, down from 6.33% in the previous week, according to Freddie Mac. While mortgage rates climbed a bit at the end of December, rates are still lower than last year’s peak of 7.08% on Nov. 10 and Oct. 27 — the highest rate in more than 20 years.

Consumer Price Index numbers were released last week, and they came in exactly as expected. It should have been lower except for shelter costs posted their highest monthly numbers since 1985. This baffled economists.

Ranae Callaway, a mortgage loan originator for Homebridge Financial Service in Brentwood, said Tuesday, “For the month of December, we had the highest month-over-month increase in shelter costs. This is going from November 2021 to December 2022, and it posted the hottest increase in gain between rents and housing … Housing prices are down 0.5% month over month, rental prices are down 0.8% month over month. However, shelter is showing up 0.8%. There will be a catch-up period and it will take some time. This is referred to as ‘lagging’.”

Callaway added, “As we go through the months and we get through the first half of the year, we will start to see the shelter costs go down. Once the shelter cost numbers catch up, we will see a meaningful reduction in inflation since 39% of core inflation numbers are shelter costs. And as we know, interest rates are driven by inflation. If we see this meaningful reduction in inflation, we will see a meaningful reduction in interest rates. Most housing experts say they’re hopeful that interest rates will level off in 2023 to around 5% to 6%, but others say the increases will likely continue into early 2023 until inflation is lower.”

Here’s how other experts predict market conditions will affect the 30-year, fixed-rate mortgage in the coming months:

♦ National Association of Realtors senior economist and director of forecasting, Nadia Evangelou: “If inflation continues to slow down–and this is what we expect for 2023–mortgage rates may stabilize below 6% in 2023.” Many buyers want to believe that the 3% may come again, however, we don’t expect to see that.

♦ Freddie Mac: Forecasts the average 30year mortgage rate to start at 6.6% in the first quarter 2023 and end up at 6.2% in the fourth quarter 2023.

♦ David Meyer, BiggerPockets “On the Market” podcast host and VP of data and analytics, said recently that while mortgage rates will likely remain volatile for the next several months, they should average below their recent peak of 7% for 2023.

♦ Erik Martin of Mortgage Reports wrote recently, “The experts we polled expect average 30-year mortgage rates to land anywhere between 5.0% and 9.31% in 2023 — a huge potential range.

♦ Mortgage Bankers Association (MBA): “Long-term rates have already peaked. We expect that 30-year mortgage rates will end 2023 at 5.2%.”