Mortgage rates are expected to fall to 5.4% by the end of 2023, the banking group projects | Techy Kings

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CNN

After more than doubling this year, mortgage rates are expected to retreat in 2023, according to the latest forecast from the Mortgage Bankers Association.

MBA economists also said they expect the US to enter a recession in the first part of next year which will be driven by tighter financial conditions, reduced business investment and slower growth globally. This will in turn push the unemployment rate up from 3.5% to 5.5% by the end of next year, according to forecasts.

“Next year will be very challenging for the US and the global economy,” said Mike Fratantoni, chief economist and senior vice president for industry research and technology. “A sharp increase in interest rates this year – a result of the Federal Reserve’s efforts to slow inflation, will lead to an equally sharp slowdown in the economy, matching the current downturn in the housing market.”

But the bottom line for homebuyers is that mortgage rates are expected to drop next year, Fratantoni said. MBA predicts mortgage rates will end in 2023 at around 5.4%. The average rate for a 30-year fixed-rate mortgage is currently 6.94%, according to Freddie Mac.

Fratantoni warned that mortgage rates will still face a lot of volatility in the future moon since the Fed is expected to continue raising interest rates this year.

Finally, the Fed’s continued efforts to tame inflation will slow homebuyer demand for mortgages in 2023, according to forecasts.

Total mortgage originations are expected to decline to $2.05 trillion in 2023 from the $2.26 trillion expected in 2022, according to the MBA. Forecasts call for mortgage purchases to fall 3% next year, while refinancing volumes are expected to decline by 24%.

Weakness in housing activity and higher mortgage rates will reduce the rate of house price growth, according to MBA. Forecasts project the country’s house prices to be roughly flat in 2023 and 2024.

“This will allow household incomes some much-needed time to catch up with high property values,” said Joel Kan, vice president, deputy chief economist at MBA. “However, many local markets will see a decline in home prices, although national price measures remain largely unchanged.”

Kan said first-time home buyers will account for the majority of housing demand over the next few years. But as more homeowners stay put, unwilling to give up their ultra-low mortgage rates, that means fewer starter homes are available. And the combination of a low inventory of homes for sale and slow new construction activity means housing supply is likely to remain limited.

As the broader level of unemployment rises during the recession, mortgage delinquencies, which are currently at low levels, will also rise, the MBA projects.

“The nation’s mortgage delinquency rate hit a record low in the second quarter of 2022, but will likely increase with the increase in unemployment and destruction caused by Hurricane Ian in Florida, South Carolina, and other nearby states,” said Marina Walsh, vice president of industry analysis. .

He also said that amid this slowdown, the mortgage industry will be affected.

“Original numbers have declined, revenues have declined, and expenses continue to rise,” Walsh said. “Lenders have begun to shrink excess capacity by reducing staffing levels, exiting less profitable channels or exiting the business entirely.”

MBA estimates that a 25% to 30% reduction in mortgage industry employment from peak to trough will need to occur, given the decline in production volume from record levels in 2020 and 2021.

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