What does the market hold for 2023 for mortgages and real estate? There is a lot of misinformation about the market.  Will there be a real estate crash?  What will happen to mortgage rates? Is now a good time to buy? Today we’re going to talk about these questions and I will share with you some insights that I have gathered over the last couple of weeks.  Much of the information I am sharing today is from Barry Habib, industry expert and CEO of MBS Highway, a mortgage and real estate research company that serves this sector.

First of all. What is going to happen with mortgage rates?? If you listen to the media. You would think that mortgage rates are going up every time the Fed meets. However, The Fed does not actually control mortgage rates. The Fed rate does influence mortgage rates inadvertently. But they do not directly impact the actual mortgage rates. In fact, if mortgage rates were tied to the Fed funds rate, interest rates would be in the 4’s right now.   The Fed does directly impact mortgage rates when they are actively purchasing mortgage-backed securities.  This is called quantitative easing.  Unfortunately for the mortgage industry at the moment, the Fed has stopped buying mortgage-backed securities and is in fact selling mortgage-backed securities from its portfolio. This is artificially increasing interest rates as it artificially lowered mortgage rates during the pandemic.

Inflation Drives Mortgage Rates

Inflation more directly impacts mortgage rates than the Fed does. When inflation is high, mortgage rates are high. When inflation goes down, mortgage rates go down.  So the Fed is trying to control inflation by increasing short-term borrowing rates to cool the economy. The good news is that the Fed policy is in fact working and reducing inflation.  We have seen rates drop from the 7’s to the upper 5’s recently as inflation cools a bit.  So we should see mortgage rates starting to drop more in the coming months. In the middle to latter part of 2023, many experts are predicting rates in the low fives by year’s end.

How is inflation calculated?

Inflation is kind of complicated, but it is calculated by the consumer price indexes 12 month rolling average. So, if one looks at the 12-month rolling average, it is fairly easy to predict what the inflation rate is likely to look like for the next 3-6 months.  December dropped again which will take out December 2021 which was a much higher number.  That gave us a more downward trend and subsequently, mortgage rates dropped.

Why are rates so high right now?

Basically, the reason mortgage rates are so high right now is twofold.  First, inflation as we just covered.  Secondly, is because it is not profitable to originate mortgages right now because investors know that those loans will pay off with refinances as soon as inflation is tamed and new mortgage rates come down.  Because of that, loan servicers don’t want to buy loans now so they are charging almost double of what they normally would to buy the mortgages.  That makes rates much higher.

What is going to happen when rates drop?

When mortgage rates drop. Those buyers that took a step back when interest rates were higher will flood the market again. This will cause competition and higher home prices again. So if you are a home buyer and you don’t want to compete, and you want to take advantage of lower prices and seller concessions, now is a good time to make that purchase.

Especially in Dallas and Fort Worth, we are seeing thousands of new residents moving here and new families being created.  These two things are creating a demand this is likely to exceed the market for several years to come.  Home appreciation will likely return to normal but it is highly unlikely we should see any decreased in values.

Richard Woodward

Branch Manager, NMLS 217454

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Licensed by the Texas Department of Savings and Mortgage Lending (SML) Mortgage Banker Registration. Nexa Mortgage is an Equal Housing Lender. This is not an offer of credit or commitment to lend. Loans are subject to buyer and property qualifications. Rates and fees are subject to change without notice.