Where Are Rates Headed in 2023

There is no consensus among economists regarding mortgage rates in 2023. Predictions can vary widely depending on various factors such as inflation, economic growth, and monetary policy. Some economists believe that interest rates will remain low, while others believe they will rise slightly. The Economist generating the forecast is largely influenced by their political bias on policies effecting inflation and economic growth and their interpretation of Federal policy and Fed comments when preparing their forecasts.

The California Association of Realtors calls for a 30-year fixed rate mortgage to be in the 6.6% range in 2023.     

Of course, the biggest impact of higher interest rates is the effect on affordability due to higher mortgage payments.  The following illustrates the effect of higher interest rates have on a mortgage payment and the associated increase in income required to afford the same home.  This illustration assumes a purchase price of $625,000 with an 80% loan or $500,000 mortgage and 43% of the borrowers income is allocated to housing expense.

• Average Mortgage rate 2021
  3.0%
  $500,000 loan amount
  $2108 Prin & Int
• Projected Mortgage rate 2023
  6.6%
  $500,000 loan amount
  $3193 Prin & Int

This 51% increase in the mortgage payment requires an additional $2,524 of income to qualify.

Every .25% movement up or down on a $500,000 mortgage effects the monthly mortgage payment by $68/mo resulting in needing an additional $158 per month additional income to qualify.

In our example, to offset the effect of higher interest rates, home values would need to drop nearly 34%, from $625,000 down to $412,500 to keep the cost of the mortgage payment the same.  CAR is only forecasting an 8.8% reduction in home prices in 2023, so affordability will continue to be a challenge.   

Real Estate is very localized, different cities and neighborhoods with-in these Cities may experience higher or lower home valuation movements then widely cast valuations estimated across States or even the Country.

Regardless of who is preparing the forecast, it is important to keep in mind that mortgage rates are unpredictable and can change rapidly and Real Estate is local, so it’s always a good idea to consult with Platinum Real Estate Advisors for the most up-to-date information and personalized advice for you and your real estate assets.