What will mortgage rates be like in 2023? Will my house decrease in value? Should I refinance or do a HELOC? As the market continues to shift and we enter a new year, you’ll undoubtedly be asked some of these questions (and more) over dinner with family and friends. And as the resident mortgage professional, you know all the answers, right?
To help you shine during those conversations, we put together some key talking points.
How will mortgage rates trend in 2023?
There are reasons to be optimistic that rates will be improving in 2023.
- Mortgage rates more than doubled in 2022. Rates hit a three-month low last week, and many forecasters indicate that rates will drop below 6%.
- The last Federal Reserve rate hike was only 50 bps instead of the 75 bps of the last few hikes, as inflation is slowing. If that continues, we’ll see the Fed continue to ease off.
Will home prices decline in 2023?
Home prices won’t likely decline much in the most attractive markets, but overall in the U.S., there will be moderate price declines.
- Homeowners are hesitant to list their homes for sale, so inventory will remain tight.
- Two-thirds of homeowners have mortgage rates under 4%, so there is a strong disincentive to sell and buy another home.
- For homeowners who need to sell, we may see some desperation set in and home prices drop in some areas.
Should I pull equity out of my home in 2023, such as through a HELOC?
A recent survey by MeridianLink found that 21% of respondents were planning to pull equity out of their homes in 2023.
- HELOCs are more directly affected by the Fed funds rate that the Federal Reserve moves up.
- HELOCs usually have variable interest rates, so the cost of borrowing can fluctuate as well as the Fed moves rates. That’s an important consideration for budgeting.
What will housing inventory look like in 2023?
Most economists are forecasting less home sales in 2023. Redfin is predicting a drop of 16% year-over-year as would-be homebuyers hold off until the economy stabilizes. People will only move if they have to, so inventory might increase a bit but it will stay tight.
- Currently there are only 3.3 million homes for sale, according to the National Association of Realtors (NAR). Total inventory will stay near historic lows. This will prevent home prices from plummeting, but it also means that less people will be moving.
- Builders are backing off starting on new home construction as they continue to try to offload the homes they’ve already built.
- Expect homes to sit on the market for longer. In 2022, that number was about 11 days on the market. We could see that pushing into 2-3 weeks in 2023.
How is today’s housing market similar (or different) from 2008’s market?
While 2023’s market will be challenging, it’s significantly different from the housing climate of 2008 for several important reasons.
- We don’t have foreclosures happening at an alarming rate. Servicing portfolios look much healthier.
- While prospective homebuyers are sitting on the sidelines, they’re doing so for temporary reasons, such as volatile interest rates and downward trending home prices, that could change quickly.
- In the meantime, they’re advancing in their careers, saving money, and planning for their future home purchase. That pent-up demand will mean recovery could be fast, as soon as market conditions trigger that recovery.
What will the economy and housing market look like over the coming year?
We wish we had the crystal ball to tell you with certainty. What we can say is this:
- Regardless of interest rates, demand for home loans remains strong. Data shows that many Americans still have plans to move, to upgrade or downsize their housing, and to enter the market as first-time buyers.
- Typically, borrowers start that process in the spring. There’s reason to believe that if the market can stabilize, despite higher interest rates, we’ll see a seasonal uptick during that time due to pent-up demand for housing.
- In almost every economic recession since the 1960s, the housing market has led into the recession and then led out of the recession. We expect a similar experience here.
We hope this list helps you navigate the inevitable questions you’ll get regarding 2023. While no one can predict the market with absolute certainty, strong signs lead us to believe there are bright spots in housing despite challenges. Here’s to tackling those challenges with confidence!