‘Welcome news’ for homebuyers as analysts expect mortgage rates to slide over the course of 2023 — with a ‘few bumps along the way’
Mortgage rates may have inched up for the second week in a row, but homebuyers are still envisioning lower rates and maybe even prices in the not-so-distant future.
“Rates should gently decline over the course of 2023” as inflation slows, Freddie Mac chief economist Sam Khater expects.
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“The prospect of lower mortgage rates for the remainder of the year should be welcome news to borrowers who are looking to purchase a home.”
While buyers may look forward to cheaper borrowing costs, sellers who haven’t listed their homes yet will need to figure out how to stand out in a more competitive market.
30-year fixed-rate mortgages
The average 30-year fixed rate increased from 6.39% to 6.43% this week.
A year ago at this time, the rate averaged 5.10%.
“At this rate, Americans need to put 20% down for a median-priced home if they don’t want their monthly mortgage payment to take up more than 25% of their income,” writes Nadia Evangelou, senior economist at the National Association of Realtors (NAR).
However, she notes, the NAR predicts mortgage rates will fall to 5.8% by the end of the year.
15-year fixed-rate mortgages
The average rate on a 15-year home loan actually moved down this week to 5.71%. Last week, the 15-year fixed-rate averaged 5.76% — though a year ago, it was just 4.40%.
“If current economic conditions persist, with elevated mortgage rates and home prices amid scarce inventory, the market is likely in for a long, slow climb and a few bumps along the way,” says Danielle Hale, chief economist at Realtor.com.
She adds that the prime time to sell has passed already — a Realtor.com study suggested the week of April 16-22 would be ideal this year — so those who list later “may find themselves needing to price competitively to stand out and attract a buyer among what is typically a growing number of sellers.”
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High-credit borrowers may now pay higher fees
Starting May 1, the Federal Housing Finance Agency is adjusting fees for mortgages backed by Freddie Mac and Fannie Mae with the aim of improving housing affordability for lower-income borrowers.
Under the new structure, borrowers with lower credit scores will pay lower fees than they used to — although these fees will still be higher than they are for borrowers with good credit.
For example, if a first-time homebuyer with a credit score of 659 makes a down payment of 20%, they will need to pay 2.25% of the loan balance instead of the 3.0% they would have been charged under the previous policy, according to Realtor.com.
This means a borrower with a $400,000 loan could save $3,000 in closing costs.
On the other hand, a well-qualified mortgage applicant could see their fees go up.
“Borrowers with scores ranging from 680 to above 780 will likely have to pay slightly more than they did under the previous system, raising concerns about the impact on middle-class homebuyers,” writes Realtor.com economist Jiayi Xu.
Someone with a credit score of 739 and a down payment of 20% will get hit with a surcharge of 1.25%, compared to the previous 0.75% rate. This means contending with an extra $2,000 in closing costs for a $400,000 loan.
Mortgage applications increase despite rise in rates
Demand for mortgages climbed 2.9% from last week, according to the Mortgage Bankers Association (MBA).
“Home-price growth has slowed markedly in many parts of the country, which has helped to improve buyers’ purchasing power,” says Joel Kan, vice president and deputy chief economist at the MBA.
Refinance activity also picked up by 5% — though it remains 61% lower than the same week a year ago.
“Most homeowners still have rates significantly lower than current levels, leaving only a small pool of borrowers with an incentive to refinance,” explains Kan.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
