Everybody has questions about where the market is heading in 2023. First, we will start by saying that no one has a crystal ball, and there are differences in opinion even among leading real estate experts and economists.
Secondly, ALWAYS bear in mind, that Atlanta is its own market, and while it’s important to consider what happens nationally, we need to always be mindful that there are specifics that make Atlanta unique.
Finally, as with all things, the real estate market is filled with multiple complexities and it’s never just one thing that you need to consider, but rather there are multiple factors that determine market conditions.
We will confine this blog to the one that gets the most play and of late, the most press…Mortgage Rates and their impact on the market.
Mortgage Rate Outlook for 2023: Where We Are
The reality is that mortgage rates have more than doubled, creating affordability issues and lowering demand significantly than where it was a few short months ago. The Fed closed out the year with a 50-basis point increase, signaling many to believe mortgage rates will continue to rise.
However, there is an alternative view among many prominent forecasters who are saying that rates may very well drop in 2023. The Mortgage Bankers Association has predicted that rates will be around 5.4% by year’s end. Others have offered predictions around 6% as well.
With the Fed declaring they will raise rates, isn’t this counterintuitive? Well turns out, it’s not. First, it’s incredibly important to understand that the Fed doesn’t control interest rates. When they talk about rates, they are referring to the FFR which informs, but does not control interest rates (or the rates of credit cards, auto loans etc.).
More impactful to mortgage rates is the yield on the 10-year Treasury Bond. Mortgage rates and the 10-year yield are connected at the hip because of how banks make their money and manage their risks. The least risky loan is to the government in the form of the Treasury Bill.
The U.S. Government has never defaulted making it a safe bet. Mortgage lending from banks come at a higher risk, hence higher rates.
Why Mortgage Rates Could Decline in 2023
One theory is that bond yields could fall and take mortgage rates with them. If the economy shows signs of a recession, investors look for low-risk investments, and that’s the Treasury Bill.
This demand for U.S. Treasuries sends bond yields and mortgage rates down. The second factor is due to the current spread between yields and mortgage rates. The current rate that banks are charging mortgage borrowers is nearly 72% over the norm. In fact, the current spread is the highest since 1986.
Nadia Evnagelou, Senior Economist and Director of Real Estate Research for the National Association of Realtors outlined the following three scenarios for 2023.
#1. Inflation remains high, forcing the Fed to repeatedly raise interest rates – as high as 8.5%.
#2. The Consumer Price Index responds to the Fed’s rate hikes, and there is a deceleration of inflation which will cause mortgage rates to stabilize around 7% to 7.5%.
#3. The Fed raises rates repeatedly to curb inflation and the economy falls into a recession, causing rates to drop to 5%.
Karen wants to remind you that no one knows precisely what will happen in 2023. As for now, her clients that need to buy and sell will continue to buy and sell, and take advantage of re-financing when interest rates are favorable. She is seeing activity and finding opportunities for her buyers and sellers. Want to know more? Contact Karen directly.
