Updated: May 10
Without a doubt, it has been an eventful start to 2023 for U.S. financial markets, and that has affected mortgage rates heading into the spring buying season.
With that in mind, I thought I’d send over a helpful overview of what current and prospective homeowners need to know about interest rates, mortgages, and the housing market in general.
March Federal Reserve Decision & Mortgages
As you may know, when the U.S. Federal Reserve raises interest rates, mortgage rates usually follow suit (more on that below).
However, at the March Fed meeting, mixed signals complicated matters. The Fed raised rates by 0.25% at the meeting but seemed to have a different message looking ahead.
In fact, Federal Reserve Chair Jerome Powell indicated that the Fed’s rate hike campaign is nearing an end, potentially good news for prospective borrowers. (This statement is key, as even subtle language changes by the Fed can affect interest rates of popular mortgage products.)
Considering Rates’ Trajectory
When considering the future trajectory of rates, it’s important to note that the actions of the Federal Reserve do not directly impact the interest rates of fixed-rate mortgages.
Instead, the Fed’s actions and statements affect 10-year Treasury yields — which are highly correlated to the direction of mortgage rates. With that said, for clues on the direction of mortgage interest rates, we can look to the U.S. 10-Year Treasury Note Yield.
At the end of the first quarter, the yield had fallen from highs of over 4% made in early March, with pressure on yields coming from recent bank failures. This activity helped edge rate mortgage rates lower to end the quarter.
You can take a look at where the U.S. 10-Year Treasury Note Yield is currently here.
Is It a Good Time to Buy?
Often asked, it's the million-dollar question. And industry analysts are still offering varied perspectives on the state of the housing market.
Lawrence Yun, Chief Economist at the National Association of Realtors (NAR,) said, "Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines. Moreover, we're seeing stronger sales gains in areas where home prices are decreasing and the local economies are adding jobs."
Factors that could shape the spring housing landscape include generally smaller down payments and declining home prices.
Mortgage Rate Outlooks
According to its most recently available forecast, Freddie Mac sees the 30-year fixed mortgage averaging 6.4% in 2023.
Realtor.com has higher mortgage rate predictions, seeing 30-year fixed hovering above 7% during 2023. Danielle Hale, Chief Economist at Realtor.com, says that while that forecast is "likely to overestimate mortgage rates for the year," a 7.4% average rate "is still within the range of possibility."
Other estimates show predictions both lower and in between Freddie Mac’s and Realtor.com’s opinions.
Single-Family Homes: Shifting Market?
Could there be a shift in single-family, townhomes, and condos? Recent data released by the National Association of Realtors says the answer could be yes.
As existing-home sales rose, median existing-home prices also declined slightly nationwide, by 0.2%. On top of that, we are seeing some signs of lower mortgage interest rates and increased mortgage demand at the start of the second quarter.
If you think of the real estate market like a pizza, this is like having the dough, sauce, and really good cheese. Should rates trickle lower as some anticipate, you now get your choice of toppings!
That said, even if mortgage rates do tick up a bit this spring, it’s worth mentioning that rates are still going to be historically low. 15% was a favorable rate in the early 1980s.
Putting It All Together
While I don’t have a crystal ball, the start of the spring buying season features increased existing home sales, lower mortgage rates, and even a slight downtick in nationwide housing prices. These factors could make now a good time to get your ducks in a row if you’ve been sitting on the sidelines as a prospective homebuyer.
Should the end of the rate hiking cycle narrative play out soon, folks looking to refinance could see a window of opportunity in the not-so-distant future, too.
Overall, I imagine the mortgage landscape over the next few months could be more favorable than in the recent past.