Mortgage rate predictions for 2023

Written by Jamie Young / December 23, 2022
Reviewed by Ashley Harrison

The holiday season is giving the gift of slow but steady mortgage rate declines. This comes after a persistent rise that, by October, put mortgage rates at more than double what they were at in early 2022.

As of December 16, the average annual percentage rate (APR) for a 30-year fixed mortgage is 6.60%. This is up from 6.52% and comes after many weeks of declines after reaching a high of 7.24% on November 11. Nonetheless, this is still more than double the 3.12% rate from a year ago.

Inside this article

  1. Mortgage rate forecast for 2023
  2. Mortgage rates at this time last year
  3. What impacts mortgage rates?
  4. Should you refinance your mortgage in 2023?
  5. Mortgage rate predictions for the next 5 years

Mortgage rate forecast for 2023

Where mortgage rates will land in 2023 depends on who you ask. Some experts are hopeful that interest rates will continue on this downward trend. But others predict increases into early 2023, especially if inflation remains out of control.

Mortgage rates began their steady climb when the Federal Reserve (Fed) started raising its benchmark interest rate in early March 2022 to taper inflation. While this doesn’t directly affect long-term fixed-rate mortgages, it impacts the bond market, influencing mortgage rates.

The Fed voted to boost its benchmark rate by 50 basis points (a basis point is one-hundredth of a percentage point) at its most recent meeting. Many experts view this as a positive sign, considering the 75 basis point increases at each of its last four meetings. That said, the Fed is still raising rates, indicating it could be a while before inflation is under control.

If we don’t see a substantial deceleration in inflation, mortgage rates will likely stay at elevated levels as we enter 2023.

What mortgage experts predict for 2023

Many mortgage experts in the housing market space expect rates will trend downward going into 2023. Here’s what they’re saying:

  • Keith Gumbinger, vice president of mortgage website HSH.com: “With inflation showing signs of slowing, fixed-rate mortgages have settled back from recent peaks as 2022 comes to a close. [We] should see less volatility for 30-year fixed mortgage rates in 2023, which are likely to hold a range between 5.875% and 6.875%. Should a recession form next year, there's a good chance that we'll see rates push through that bottom. Conversely, if inflation doesn't behave as hoped, this top figure might not hold. Meanwhile, the most popular [adjustable rate arm] will still see some homebuyer interest. But higher short-term rates [will] likely see the 5/1 ARM run in a 5.125% to 6.25% range next year."

  • Rick Sharga, executive vice president of market intelligence at ATTOM: “There's a good chance that mortgage rates may have already peaked this cycle, as recent inflation numbers have been heading in the right direction, and the Federal Reserve has indicated it may be less aggressive about future rate hikes. Mortgage rates have fallen for five consecutive weeks, and at their current pace of decline, they could drop below 6% by the second quarter of 2023.”

  • Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors (NAR): Yun points out there is a very high spread between the 30-year fixed-rate mortgage and the 10-year Treasury yield, which moves similarly together. “It is inevitable that this abnormal high spread will begin to narrow, which means that there’s even further room for mortgage rates to decline in the upcoming months … and as the mortgage market normalizes, there’s an opportunity for mortgage rates to decline even further.”

  • Mark Fleming, chief economist at First American: “The popular 30-year fixed mortgage rate is loosely benchmarked to the 10-year Treasury bond, so as the Federal Reserve continues tightening monetary policy to combat inflation, we can expect more upward pressure on Treasury bonds and, therefore, mortgage rates … If inflation decelerates toward the Fed’s target range in the second half of 2023, as is currently expected, then it’s possible that mortgage rates may decline modestly in the latter half of the year.”

  • Danielle Hale, chief economist at Realtor.com: “We expect higher rates are likely to stick around until inflation makes much bigger strides back toward the 2% target. But in a welcomed pace of change, we expect lower volatility in mortgage rates in the year ahead.”

Freddie Mac also forecasts that the 30-year fixed-rate mortgage will average 6.4% in 2023, with an average of 6.2% in the fourth quarter. And the Mortgage Bankers Association (MBA) is a bit more optimistic, forecasting that mortgage rates for 30-year fixed-rate mortgages will head downwards in the new year and end 2023 at about 5.2%.

The housing market has certainly welcomed the recent decline in mortgage rates,” according to the MBA. This decline is reflecting market expectations of being near the peak for short-term rates, as well as increased signs that the U.S. is headed for a recession next year. Weaker growth typically leads to lower long-term interest rates, including mortgage rates."

Mortgage rates at this time last year

After sinking below 3% throughout much of 2021, mortgage rates rose above 3% in mid-December 2021. However, once the Fed began its monetary tightening in March 2022, mortgage rates broke through 4%. 

As the Fed continued to raise the federal funds rate throughout 2022, mortgage rates rose in kind. The average 30-year fixed rate reached a 20-year high of around 7.20% in October and November. 

What impacts mortgage rates?

  • State of the economy

  • Inflation

  • Federal Reserve’s monetary policies

  • Housing market conditions

  • Bond market 

  • Mortgage demand 

  • Lender overhead costs

  • Borrower’s financial profile

Should you refinance your mortgage in 2023?

Though mortgage refinancing rates have started cooling, refinances are still down 85% from a year ago, according to the MBA. Refinancing rates remain three percentage points higher than the prior year.

So if you’re part of the roughly 85% of homeowners with a mortgage rate locked in at less than 6%, 2023 may not be the right time to refinance. Many experts predict that 30-year fixed rates will average around 6% for most or all of the year.

Even so, everyone’s situation is different. For instance, many homeowners built up home equity over the past couple of years due to the rapid appreciation of home prices, and there may be reasons why some will want to tap into that. 

“For existing homeowners, they can use a cash-out refinance and take this amount in order to pay for … student debt or … renovations,” says Nadia Evangelou, senior economist and director of forecasting for the NAR. 

Mortgage rate predictions for the next 5 years

Given the unprecedented rate fluctuations of the past couple of years and ongoing economic uncertainties, it may be easier to win the lottery than predict where mortgage rates are headed over the next five years.

However, there are certain factors that economists agree will push rates up or down. For instance, we’re already seeing the slower pace of inflation impacting rates, and economists are hopeful that this trend will continue. “If inflation continues to slow down—and this is what we expect for 2023—the mortgage rate may stabilize below 6%,” says Evangelou. 

Even so, Evangelou doesn’t expect mortgage rates to go back to 3% anytime soon but notes that even fixed mortgage rates below 6% will still be less than the historical average of roughly 8%.

Other experts agree that rates will likely come down in the next few years. So we’re unlikely to see the low rates we saw in 2021.

“Interest rates are currently at a 15-year high, so it's difficult to envision this lending environment as going … much higher,” says Jim Black, executive director of lender strategy at Calque, Inc. “But it will be a long road back to 4%.”

About the Authors

Jamie Young

Jamie Young

Jamie Young is an authority on personal finance who has been writing and editing for online media for 10 years. Her work has appeared on some of the best-known media outlets including Forbes, Time, CBS News, Huffington Post, Business Insider, AOL, MSN, and more.

Jamie is passionate about finance, technology, and the Oxford comma. In her free time, Jamie takes care of her two crazy cats and ever-growing collection of plants. She’s also an avid gamer who watches way too many true crime documentaries. 

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Ashley Harrison

Ashley Harrison

Ashley is a personal finance authority who has worked in the online finance space since 2017. She’s passionate about creating helpful content that makes complicated financial topics easy to understand, and her work has appeared on Forbes Advisor, Credible, Fox, and Student Loan Hero.

Ashley is also an artist and massive horror fan who had her short story “The Box” produced by the award-winning NoSleep Podcast. In her free time, you can find her drawing, scaring herself with spooky stories, playing video games, and chasing her black cat Salem.

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