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Mortgage rates will fall to 4.5% in 2023? That's the estimate from Fannie Mae. Here’s what that means for homebuyers

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Mortgage rates are projected to decline next year — but that doesn't mean prospective homebuyers should necessarily delay a purchase for the prospect of lower financing costs.

The rate on a 30-year fixed mortgage will fall to an average 4.5% in 2023, according to a recent housing forecast published by Fannie Mae, a government-sponsored lender.

That dynamic would offer relief to would-be homebuyers who've seen mortgage rates balloon this year.

The Federal Reserve started increasing its benchmark interest rate in March to tame stubbornly high inflation, which has resulted in higher borrowing costs for consumers — who may feel a sense of whiplash from 2020, when rates bottomed out near historically low levels.

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Average rates are expected to be 4.7% and 4.4% in the first and fourth quarters of 2023, respectively — down from 5.2% in Q2 this year, according to Fannie Mae.

Still, consumers should "take forecasts with a grain of salt," according to Keith Gumbinger, vice president of HSH, a market research firm.

"If you're participating in the marketplace, interest rates are important but might not be the most important component," Gumbinger said.

How mortgage rates impact your wallet

Here's an example, according to HSH data: At a 3.5% fixed rate, a homebuyer with a $300,000 mortgage would pay about $1,347 a month and $185,000 in total interest over 30 years. At a 5.5% rate, homeowners would pay $1,703 a month and pay over $313,000 in interest for the same loan amount.

Here's another example, which assumes a buyer has an $80,000 pre-tax annual income and makes a $30,000 down payment. This buyer would qualify for a $295,000 mortgage if rates were 3.5%, about $50,000 more than the same buyer at a 5.5% rate, according to HSH data. That differential may put certain home out of reach.

What prospective buyers should consider

Kevin Mahoney, a certified financial planner based in Washington, D.C., favors fixed rate loans due to the certainty they provide consumers. Homebuyers with a fixed mortgage can potentially refinance and lower their monthly payments when and if interest rates decline in the future.

More broadly, consumers should largely avoid using mortgage estimates like Fannie Mae's as a guide for their buying decisions, he added. Personal circumstances and desires should be the primary driver for financial choices; further, such predictions can prove to be wildly inaccurate, he said.

"You could chase better numbers for years on end in some cases if things don't go your way," said Mahoney, founder and CEO of millennial-focused financial planning firm Illumint.

But prospective buyers can perhaps risk waiting if they don't have a rigid timeline for a purchase and have cushion in their budgets in case mortgage rates don't move as projected, Mahoney added.

Consumers who find a home they like — and can afford to buy it — are likely better served jumping on the opportunity now instead of delaying, Gumbinger said.

Even if borrowing costs improve next year, overall affordability will likely still be a challenge if home prices stay elevated, for example, he added.

Source: https://www.cnbc.com/2022/08/29/fannie-mae-says-fixed-mortgage-rates-could-fall-to-4point5percent-next-year.html


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