Mortgage Rates Decline to Lowest Level in Four Months, 2023 Recession ‘Still an Issue’

A 'For Sale' sign is posted in front of a single-family home in Hollywood, Fla., on Oct. 27, 2022. (Joe Raedle/Getty Images)

U.S. mortgage rates for 30-year fixed-rate loans have fallen to their lowest in four months amid a slowdown in the pace of interest rate hikes by the Federal Reserve and a decrease in home sales last year, with some experts predicting the easing down of mortgage rates to be the trend for 2023.

The average rate on a 30-year fixed-rate mortgage for the week ended Jan. 18 was 6.15 percent, down from 6.33 percent a week back, according to data from mortgage lender Freddie Mac. “As inflation continues to moderate, mortgage rates declined again this week. Rates are at their lowest level since September of last year, boosting both homebuyer demand and homebuilder sentiment. Declining rates are providing a much-needed boost to the housing market, but the supply of homes remains a persistent concern.”

The last time rates on the 30-year fixed-rate mortgage were lower than 6.15 percent was the week ended Sept. 14, when it was 6.02 percent. Despite coming down from a peak of 7.08 percent hit in the week ended Oct. 26, 2022, rates are still far higher when compared to 3.56 percent a year back.

Meanwhile, interest rate on the 15-year fixed-rate mortgage for the week ended Jan. 18 was also at its lowest level since September.

The jump in mortgage rates has mirrored the rise in the Federal Reserve’s benchmark interest rates. A year ago in January 2022, the interest rate was in a range between zero and 0.25 percent. Over the past year, the Fed boosted the rates in a bid to contain inflation. and it now sits in a range of 4.25–4.50 percent.

Mortgage Rates in 2023

According to Greg McBride, a chief financial analyst for Bankrate, mortgage rates in 2023 might not show the steady uptrend seen in the past year.

“Inflation is still an issue, but so are the concerns about a recession in 2023. Mortgage rates will yo-yo up and down depending on what the latest economic release or Federal Reserve speech says,” he said, according to a post by Bankrate on Jan. 1.

Freddie Mac predicts the average rate for the 30-year fixed-rate mortgage will be 6.4 percent this year. Fannie Mae sees the rate slightly higher at 6.8 percent. However, the Mortgage Bankers Association (MBA) expects the rate to dip to 5.2 percent.

The easing down in mortgage rate growth or even a dip in the rate is seen as possible, given that many Fed policymakers are expecting the central bank’s benchmark rate hikes to also slow down this year.

Patrick Harker, president of the Federal Reserve Bank of Philadelphia, is only expecting 25 basis-point rate hikes moving forward, a far cry from the 75-point hikes last year.

In an address on Jan. 18, Dallas Fed President Lorie Logan also indicated that the pace of interest rate hikes needs to be slowed down so as to better calibrate the monetary policy with economic uncertainty.

Housing Market

The massive jump in mortgage rates last year has had a negative impact on the housing market. A Jan. 3rd report from the National Association of Realtors (NAR) shows that home sales had declined for 10 consecutive months until November.

The number of existing-home sales in the United Sales fell from 6.33 million in November 2021 to 4.09 million in November 2022, a fall of more than 35 percent.

Building permit authorizations and housing starts declined in 2022 compared to 2021, according to the latest report (pdf) by the U.S. Department of Commerce.

“An estimated 1,649,400 housing units were authorized by building permits in 2022. This is 5.0 percent below the 2021 figure of 1,737,000 … An estimated 1,553,300 housing units were started in 2022. This is 3.0 percent below the 2021 figure of 1,601,000,” the Jan. 19th report states.