In our February 2023 blog post, we will explore expectations for mortgage interest rates into 2023. This is a topic of great concern among home buyers and home sellers alike because, as much as any other single factor, it can affect the strength and vitality of the residential real estate market. As we discussed in our January blog post, the market in the Charlotte metro area is expected to remain strong into 2023, largely due to continuing high buyer demand and continuing low inventory of homes for sale. In fact, Charlotte is viewed by many as one of the most attractive residential real estate markets in the country. Among the large national aggregators of real estate data, Zillow predicts Charlotte will be the #1 hottest real estate market in 2023.
With
this in mind, expectations for mortgage interest rates in 2023 will have a
large impact on the Charlotte market.
Market watchers are aware that inflation
in 2022 reached heights not seen in the U.S. in 40
years. In response, the Federal Reserve
raised its benchmark interest rate several times, in an effort to put the
brakes on lending and inflation. Of
course, this in turn resulted in a rise in mortgage interest rates in 2022 from
historic lows around 3% in 2021 to near 7% in 2022. This made housing less affordable everywhere
by causing the monthly cost of owning a home to rise significantly. The very same 30-year $300,000 mortgage under
which principal and interest cost $1,265 per month at 3% began to cost the
borrower $1,996 per month at 7%.
But
the national economy did appear to begin cooling a bit by the end of 2022, with
inflation dropping from a high of 9.1% in June of 2022 to about 6.5% by
December of 2022. This has led many to
speculate that continuing increases in the Fed Funds Rate by the Federal
Reserve in 2023 may be more moderate, as the Fed believes it is getting
inflation under control.
This
has caused mortgage interest rates to actually decline a bit from their high in
December 2022 of 7.08% to 6.33%
for the week ending January 12, 2023 for a 30-year fixed-rate
loan. There also remains a high demand
on the secondary mortgage market for closed loans, and this has also placed
pressure on the market to keep rates lower than they might otherwise be.
The
Federal Reserve is likely to raise the fed funds rate a bit higher in 2023, but
the success they appear to be having in moderating inflation, and the continued
strength of the mortgage market and the residential real estate market overall
has led many to expect mortgage interest rates to settle in 2023 somewhere
between 5% and 6% for a 30-year fixed rate mortgage. The days of 3% mortgages may be gone for a
while, but a rate between 5% and 6% is still below the historical
average since 1971 of just under 8%. Combining this with the intrinsic vitality of
the residential real estate market in the Charlotte metro area, 2023 may well
be another good year for the Charlotte.
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