5 Mortgage Market Trends to Watch in 2023
The past few years have been a bit of a wild ride. 2021 was a record-breaking year for real estate, but it also set the stage for the housing inventory problem that we see today. 2022 was a year marked by volatility in the housing market. Interest rate hikes throughout 2022 had an outsized impact on the mortgage industry.
As we head into 2023, there are signs that we may see an uptick in homebuying activity and a return to more normal conditions, with rates likely to stabilize and home prices to moderate.
Following are five mortgage market trends to be on the lookout for in 2023:
Mortgage Rates Likely to Stabilize
In the wake of the latest declines, mortgage rates have likely reached their peak. While mortgage rates are unlikely to return to pre-pandemic levels even as inflation cools, they should fall in line with historical norms.
Experts forecast the 30-year FRM (fixed-rate mortgage) will probably run in a 5.5% to 7.5% range for 2023. In a best-case scenario, we may see rates for 30-year mortgages somewhere between 5.5% to 6% by the end of 2023, according to ATTOM executive vice president of market intelligence, Rick Sharga.
Housing Inventory to Remain Low
Housing supply shortages have kept demand firm compared to past downturns, which has helped sustain higher home prices. Additionally, more builders are pulling back from new construction, further squeezing the already limited housing supply. Single-family construction starts and applications for building permits in November 2022 were down 4.1% and 7.1%, respectively, from the previous month, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.
In sum, housing inventory is expected to remain tight in 2023, with housing starts below historical averages and fewer homeowners willing to sell, according to NAR Chief Economist Lawrence Yun.
No Consensus on Home Price Correction
There are mixed signals from economists about if and when home prices will fall. NAR Chief Economist Lawrence Yun believes the ongoing housing supply challenges will prevent home prices from falling, though price appreciation will slow. Deputy chief economist for Redfin, Taylor Marr, for his part, expects the median U.S. home-sale price to drop by roughly 4% in 2023, with the decline more pronounced in pandemic migration hotspots like Austin, Texas, Boise, Idaho, and Phoenix, as well as expensive West Coast cities.
Focus on Technology
Another trend for 2023 is a continuing focus on technologies that drive efficiency and help blunt the effects of layoffs and staffing challenges.
Janneke Ratcliffe, vice president of the Housing Finance Policy Center at the Urban Institute, expects to see innovation accelerate with lenders. “We’re seeing pilots and new programs around alternatives in credit scoring, artificial intelligence, climate adaptation, manufactured housing, and more”, she said.
Increased Use of ARM and Other Financial Instruments
In response to rising interest rates, lenders are marketing alternative financing options that may offer opportunities for consumers to access potentially lower rates in the current enviroment, such as Adjustable-Rate Mortgages (ARM), Temporary Buydowns, and Home Equity Line of Credit (HELOC) or Home Equity Loan.
Are you looking to kick-start your mortgage business in 2023? Talk to our team of experts today!
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