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Will mortgage rates go up in January 2023?

Published January 01, 2023
Written by Erik J. Martin
Edited by Troy Segal

Oh, the weather outside is frightful, but the interest rate climate is not so nice. That’s because mortgage rates have more than doubled since last year. So if your New Year’s resolution is to buy or refinance a home, be prepared to put up more cash for a home loan. You may even want to wait until some of the early 2023 holidays pass before locking in a rate that will hopefully be more suitable for your wallet.

The good news is that the average interest rate on the benchmark 30-year fixed-rate mortgage has fallen to at least below the 7 percent threshold it crossed in the fall. As of this writing, the rate on a 30-year mortgage purchase loan averages 6.47 percent nationwide compared to 6.02 percent on a 15-year fixed loan and 6.54 percent for a refinancing loan.

Where are rates headed in January, you wonder? That is a question that only experts should attempt to answer. So we got in touch with several of the professionals who closely watch the market. Read on for their predictions.

January Mortgage Rates: Are They Going Up, Down, or Staying the Same?
Make no mistake: It’s no easier to predict rates in January than at any other time of the year.

Some professionals are forecasting that mortgage rates will be close to where they landed in December. “The average 30-year fixed mortgage rate in January will be between 6.4% and 6.6%, while the average 15-year fixed mortgage rate will be in the range of 5.6% to 5.8%” , predicts Greg McBride, chief financial analyst at Bankrate. .

Ralph DiBugnara, president of Home Qualified and a member of the Forbes Real Estate Council, endorses that assessment.

“In January, we should see interest rates stay around December averages,” he explains, adding that he expects average rates of 6.5 percent and 5.875 percent next month for the 30-year and 15-year mortgage. , respectively. “The Fed made it clear that until the end of 2022 they will continue to raise interest rates. They have not been clear about what exactly 2023 will look like for a new policy; therefore, rates have remained unstable without a clear direction”.

“Inflation remains an issue, but so are concerns about a 2023 recession. Mortgage rates will go up and down depending on what the latest economic report or Federal Reserve speech says.

—Greg McBrideBankrate Chief Financial Analyst

Others expect rates to drop slightly in the coming weeks.

“Mortgage rates will probably start the year near 6.2 percent. Two of the main factors affecting today’s mortgage market have become more favorable recently when it comes to mortgage rates,” says Nadia Evangelou, a senior economist and director of forecasting at the National Association of Realtors in Washington, DC. “Inflation continues to decline as the Federal Reserve has switched to smaller interest rate hikes. The higher 2022 federal funds rate has begun to bring inflation under control. Therefore, mortgage rates will likely stabilize below 6 percent throughout 2023.”

And then there are those who anticipate that rates will rise undesirably higher in the near term.

“Thirty-year rates will be around 8 percent in January due to the recent rate hike and a slight slowdown in inflation. Meanwhile, 15-year rates will be at 7.5 percent, approaching 30-year rates as short-term risk increases early in the year,” says Dennis Shirshikov, Awning.com strategist and professor of economics and Finance for the City University of New York. “Higher inflation and weak consumer spending will likely drive mortgage rates higher as people get more tired of economic reality and start to realize there may be a deep recession in 2023.”

Curious about what mortgage market makers and lenders are expecting? For the first quarter of 2023:

Where will mortgage rates go in 2023?
DiBugnara is hopeful that we will have more clarity on mortgage rates relatively soon. “Sometime in January, the Fed will make it clear what their rate policy is going to be for 2023. I think they’ll mostly stand still for now and not increase any further,” he says. “Initially, the market may react favorably to that news. But ultimately, until there is either a reduction or a clear statement that the Federal Reserve will not raise rates any further in 2023, rates are likely to remain around their average at the end of 2022.”

DiBugnara adds that he is surprised the Fed has maintained its rate-raising policy in recent months given recent figures from the Consumer Price Index and other economic factors that indicate inflation may have peaked. But he doesn’t think this rate-hike policy will continue in 2023, “which could be a good sign for lower interest rates.”

Unless inflation surprises to the upside, rates should approach the 6 percent threshold in the coming weeks, Evangelou believes. “The gap between the 10-year Treasury yield and the 30-year fixed mortgage rate remains unusually large. Given a more positive outlook for 2023, the gap between these two rates may narrow, giving mortgage rates more room to drop,” he explains.

“If inflation has peaked, and the indications are that it has, then we’ve seen mortgage rates spike,” agrees McBride. “But some swing in mortgage rates is expected, as the Fed’s dour remarks on higher rates offset any over-optimism about inflation falling to a still shockingly high 7.1 percent.”

McBride also cautions that “January always seems to produce some other surprise, whether it’s market volatility or geopolitical concerns, so expect the unexpected.”

Suzanne Hollander, a professor of real estate law at Florida International University, is surprised that rapidly rising rates have not yet translated into lower US home prices “during the 1970s.” and 1980, when interest rates were high, prices were low. Buying now with high rates and high prices at the same time creates a very high monthly cost for borrowers,” she notes.

Should you buy or refinance in January 2023?
So what’s the best move for prospective homebuyers in January?

Shirshikov insists that now is still an opportune time to buy if you can afford it. “With rising rental rates, homebuyers still get better terms for owning than renting in many markets,” he says.

“Understand your loan options carefully. The type of financing you should choose will determine the amount of your down payment and the house you can buy,” advises Evangelou. “For first-time homebuyers, adjustable-rate mortgages may be a better option. These mortgages have a lower introductory rate than fixed-rate loans, and first-time homebuyers can particularly benefit as these homebuyers tend to stay in their homes for a shorter period of time.”

Hollander advises would-be homeowners to improve their credit and shop for deals. “Monitor the market for distressed homes for sale,” he says, adding that foreclosure filings are up 57 percent from the previous year. “Try to build a relationship with a lender and show your financial ability to move fast and get one of these properties off your books.” HUD homes being auctioned off by the Department of Housing and Urban Development and Fannie Mae’s HomePath Ready Buyer program are two other sources of foreclosure settlements.

If you’re considering a refinance, you’ll probably want to kick that can to the curb, as it’s unlikely you’ll be able to get a lower rate than your current rate. But if you’re still determined to do so, “examine why you want to refinance and do the math to understand what your new monthly payment would be,” Hollander recommends.

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