Could 2023 Bring Relief for Millennials Hoping to Buy Homes Amid Rising Mortgage Rates?
Over the past year, many potential home buyers have withdrawn from the US real estate market, primarily because home prices have stayed elevated and mortgage rates have remained high. This challenging combination of factors has made homeownership less accessible for a lot of people, particularly those struggling with affordability.
But some people have forged forward with a home purchase and mortgage loan despite higher borrowing rates and elevated housing prices. In a recent survey by Real Estate Witch, though, 81% of millennial home buyers say they wish they’d bought a home before rates increased.
The good news, however, is that when it comes to borrowing via a mortgage, you’re not necessarily stuck with the same interest rate forever. There’s always the option to refinance the loan once borrowing rates come down.
But is that likely to happen in 2023? It’s hard to say. But it’s also possible that we will see a notable decrease in mortgage rates within the year.
Hopeful Signs for Buyers Amid Challenging Market Conditions
As of this writing, the average 30-year fixed-rate mortgage rate is 6.13%, according to Freddie Mac. Seeing as how mortgage rates were above 7% at one point last year, 6.13% is certainly an improvement. But it’s also a far cry from the rates in the 3% range mortgage borrowers were looking at in early 2022.
However, there’s reason to believe that mortgage rates could come down quite a bit in 2023. For one thing, the pace of inflation has been slowing, which might lead the Federal Reserve to pump the brakes on the aggressive interest rate hikes it implemented in 2022. Those rate hikes tend to drive borrowing costs up across the board.
That said, mortgage rates often rise and fall independently of what the Fed is doing. And this year, lenders might come down on rates if buyer demand continues to wane.
Refinancing could be an option
If you signed a mortgage last year at a time when borrowing rates were high, a decline in rates could open the door to refinancing. And the savings there could be significant.
Now that said, there are closing costs associated with refinancing a mortgage — and those costs could be substantial. So as a general rule, it really only makes sense to refinance a mortgage if you can shave about 1% or more off your existing loan’s interest rate.
If you signed a mortgage at 6.75% last year, though, and rates drop to the mid-5% range this year, then a refinance could pay off. And a lower interest rate on your mortgage could result in much lower monthly housing payments.
Of course, we can’t say with certainty that mortgage rates will drop all that much in 2023, or even at all. Rates could even reverse course and start rising again, topping the 7% mark once more.
Homeowners who are stuck with higher mortgage rates should keep tabs on how rates are trending. That way, they can jump at the opportunity to refinance once it makes financial sense to do so.