Mortgage Rates Rise During the First Week of 2023

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Mortgage rates rose across the board during the first week of 2023, with the exception of FHA loan rates, which decreased slightly. The average 30-year fixed mortgage rate increased to 6.81%, almost twice as high as it was during the same time last year, when it was 3.5%. Still, the 30-year rate is down a half-point from the peak of 7.33% in November 2022.

Here are the current mortgage interest rates, without discount points unless otherwise noted, as of Jan. 5:

  • 30-year fixed: 6.81% (up from 6.73% a week ago).
  • 20-year fixed: 6.44% (up from 6.14% a week ago).
  • 15-year fixed: 5.96% (up from 5.82% a week ago).
  • 10-year fixed: 6.01% (up from 5.79% a week ago).
  • 5/1 ARM: 5.49% (up from 5.42% a week ago).
  • 7/1 ARM: 5.62% (up from 5.54% a week ago).
  • 10/1 ARM: 6.02% (up from 5.97% a week ago).
  • 30-year jumbo loans: 6.85% (up from 6.8% a week ago).
  • 30-year FHA loans: 5.99% with 0.25 point (down from 6.2% a week ago).
  • VA purchase loans: 6.03% with 0.07 point (up from 5.98% a week ago).

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“While mortgage market activity has significantly shrunk over the last year, inflationary pressures are easing and should lead to lower mortgage rates in 2023. Homebuyers are waiting for rates to decrease more significantly, and when they do, a strong job market and a large demographic tail wind of millennial renters will provide support to the purchase market. ”

– Sam Khater, Freddie Mac’s chief economist, in a Jan. 5 statement

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While it may sound bold to say that mortgage rates will fall meaningfully this year, Khater is not alone his prediction. The Mortgage Bankers Association puts this year’s annualized rate at 5.2%, and the National Association of Realtors believes rates will stabilize below 6%.

“We project lower rates and rising inventory levels as two positives for households wanting to buy a home in 2023,” MBA President and CEO Bob Broeksmit says in a statement.

That’s good news for shoppers who have been waiting until mortgage rates retreat to buy a home – and even for those who bought in 2022 when rates were at their peak. The latter group may have the chance to refinance to a lower interest rate, or switch from an adjustable-rate mortgage to fixed rate.

For now, though, mortgage rates remain elevated. But with a little patience, prospective homebuyers are more likely to find an affordable home in the coming months as rates pull back and inventory remains well above 2022 levels.

Indicator of the Week: 40 Days

New listings of homes for sale are down by double digits since last year, and yet housing inventory last month rose 18% year over year amid a “typically slow” holiday homebuying season, according to a housing market update from real estate brokerage Redfin. The reason? Homes are taking longer to sell, sitting on the market for an average of 40 days before going under contract. That’s in contrast to the record low of 18 days set in May 2022.

Additionally, just over a quarter of homes for sale (28%) went under contract in less than two weeks, which is the lowest level since January 2020. With more time to weigh their options, shoppers no longer have to rush to submit an offer on the same day they tour a home. It also gives buyers the power to ask for seller concessions – something that was rare during the red-hot housing market when rates were at record lows.

“Typically, the longer a home sits on the market, the more willing sellers are to negotiate,” says Daryl Fairweather, chief economist at Redfin. “This is good news for buyers who want sellers to come to the table with incentives to make the home more affordable.”

While sellers may be willing to bring down the purchase price a few thousand dollars, that won’t make a big difference when it comes to short-term affordability. Rather, buyers can discuss alternative concessions with their agent, including money toward closing costs or even interest rate buydowns. In the latter case, a seller may be willing to pay for discount points that can lower the buyer’s mortgage rate, which can be a strong incentive at a time when rates are well above 6%.

With the market turning ever so slightly in favor of buyers, it may also be possible to include contingencies that reduce the risk of buying a home that hides expensive problems within its walls. A home inspection contingency, for example, allows the buyer to request repairs (or even pull away from the deal) if the inspector finds serious damage. And a home appraisal contingency ensures that the buyer isn’t left paying the difference between the purchase price and the home’s appraised value. These types of contingencies were often waived in the frenzied seller’s market of the past few years.

“A record share of home sellers are giving concessions to buyers as homes linger on the market, making this a good time for buyers to be aggressive in asking for what they need to afford the home of their dreams,” Fairweather says.

Of course, it’s a bit unrealistic to say there’s a true buyer’s market when mortgage rates and stubbornly high home prices are pushing so many aspiring homeowners to the sidelines. But with the right mix of negotiating seller concessions and shopping for an affordable home loan, it may be possible for prospective buyers to close the deal in 2023 – particularly if rates fall this year as economists predict.

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