Some good news for a change for prospective home buyers hoping for competitive mortgage rates, the most recent Fannie Mae forecast predicts rates will drop toward the end of 2023.
In May of this year, a typical 30-year fixed-rate mortgage had an interest rate of about 6.4% according to Freddie Mac. If Fannie Mae’s predictions are correct, the same mortgage could have an interest rate of 5.7% by the end of the year.
And it gets better. Fannie Mae predicts the rate for a 30-year fixed mortgage to fall to 5.2% by the end of next year.
Lower mortgage rates could make selling a more attractive option to homeowners who may feel they need to stay with their current mortgages rather than risk paying a higher rate if they move — the mortgage rate lock-in effect. Between 2020 and 2022, rates from 2% to 3% were available for 30-year fixed mortgages. Homeowners who purchased at those rates may be reluctant to move since they would likely have a much higher rate on a new mortgage.
Should mortgage rates drop below 5%, more of those homeowners would be able to sell their homes and buy new ones. Lower rates also would make it easier for new buyers to purchase homes, driving up the demand for mortgages.
With more homeowners potentially upgrading, more affordable starter homes will be available, opening up new growth in the housing market. That potential for growth is reflected in Fannie Mae’s 2023 home sales forecast, which has been revised from 4.63 million to 4.84 million units.
Overall, Fannie Mae raised its projection for total residential loan origination volume from $1.55 trillion to $1.66 trillion for 2023 and increased its 2024 forecast from $1.89 trillion to $2.02 trillion. This is still significantly lower than the 2021 actual figure of $4.6 trillion.
When interest rates drop, I expect more buyers to be out, and that demand for homes will further increase the values of homes. If you are looking for a home, now is a great time to purchase with consideration of a lower rate with a 5/1 or 10/1 ARM and then refinance when rates hopefully come down as with that high demand we will see with lower interest rates, we will likely be seeing prices rise significantly again next year.
For more information on today’s real estate market, contact:
Kim FoemmelKim Foemmel
Foemmel Fine Homes
1 Lumber Street, Suite 207C