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Mortgage rates fell several weeks ago and have remained stable ever since. Rates will likely remain near current levels for the remainder of 2022 and should decline somewhat in the new year.
The Federal Reserve is due to meet in mid-December to consider another hike in the federal funds rate, and markets widely expect the central bank to enact a 50 basis point hike.
As the Fed has raised rates this year in an attempt to control inflation, mortgage rates have also risen. The average 30-year fixed mortgage rate is now more than three percentage points higher than it was at the start of this year, adding hundreds of dollars to the average monthly mortgage payment.
High mortgage rates have lowered demand for home purchases and as a result, home prices are starting to decline on a monthly basis. In September, the S&P CoreLogic Case-Shiller index was down 1% from the previous month. This is the third month in a row that this index has declined month over month, although prices are still up 10.6% from a year ago.
Until mortgage rates fall further, demand will likely remain weak, which could drive home prices further down. But as supply is still tight, they are unlikely to experience a significant drop or crash.
Today’s Mortgage Rates
| Type of mortgage | Average rate today |
Today’s Refinance Rates
| Type of mortgage | Average rate today |
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Use our free mortgage calculator to see how today’s mortgage rates will affect your monthly and long-term payments.
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$1,161
Your estimated monthly payment
- pay one 25% a higher down payment would save you $8,916.08 on interest charges
- Lower the interest rate by 1% would save you $51,562.03
- Pay an extra fee $500 each month would reduce the term of the loan by 146 month
By plugging in different terms and interest rates, you’ll see how your monthly payment might change.
Projection of mortgage rates for 2023
Mortgage rates started to recover from historic lows in the second half of 2021 and have risen more than three percentage points so far in 2022. They will likely remain near current levels for the remainder of 2022.
But many forecasts predict that rates will start falling next year. In their latest forecast, Fannie Mae researchers predicted that rates are currently peaking and that 30-year fixed rates will drop to 6.5% by the end of 2023.
The Mortgage Bankers Association also noted that a recession in the first half of 2023 could cause rates to drop even faster. He currently estimates that there is a 50% chance that a mild recession will materialize next year.
The decline in mortgage rates in 2023 depends on the Federal Reserve’s ability to control inflation.
Over the past 12 months, the consumer price index has increased by 7.7%. This is a slowdown from the previous month’s numbers, meaning the Fed could start to slow its pace of raising the fed funds rate.
As inflation slows, mortgage rates will likely start to come down as well. If the Fed acts too aggressively and engineer a recession, mortgage rates could fall further than currently forecast. But rates are unlikely to fall to the historic lows that borrowers have enjoyed over the past two years.
Should I get a HELOC? Advantages and disadvantages
If you’re looking to tap into the equity in your home, a HELOC might be the best way to do it right now. Unlike a cash-out refinance, you won’t have to get a new mortgage with a new interest rate, and you’ll likely get a better rate than with a home equity loan.
But HELOCs don’t always make sense. It is important to consider the pros and cons.
HELOC Benefits
- Only pay interest on what you borrow
- They usually have lower rates than alternatives, including home equity loans, personal loans and credit cards
- If you have a lot of equity, you could potentially borrow more than you could get with a personal loan.
Against HELOC
- Rates are variable, which means your monthly payments could increase
- Withdrawing equity from your home can be risky if the value of the property drops or you fail to repay the loan
- The minimum withdrawal amount may be more than you wish to borrow
When will real estate prices go down?
House prices are starting to drop, but we probably won’t see huge drops, even in a recession.
The S&P Case-Shiller Home Price Index shows that prices are still up year over year, although they fell on a monthly basis in July, August and September. Fannie Mae researchers predict a 1.5% price decline in 2023, while the MBA predicts a 0.7% increase in 2023 and a 0.1% decline in 2024.
Skyrocketing mortgage rates have pushed many promising buyers out of the market, slowing demand for home purchases and putting downward pressure on home prices. But rates could start falling next year, taking some of that pressure off. The current supply of homes is also historically low, which will likely prevent prices from falling too far.
What happens to house prices in a recession?
House prices generally fall during a recession, but not always. When this happens, it’s usually because fewer people can afford to buy homes and weak demand forces sellers to lower their prices.
How much mortgage can I afford?
A mortgage calculator can help you determine how much you can afford to borrow. Play around with different house prices and down payment amounts to see how much your monthly payment might be, and think about how that fits into your overall budget.
As a general rule, experts recommend spending no more than 28% of your gross monthly income on housing expenses. This means that your total monthly mortgage payment, including taxes and insurance, should not exceed 28% of your pre-tax monthly income.
The lower your rate, the more you’ll be able to borrow, so shop around and get pre-approved with multiple mortgage lenders to see who can offer you the best rate. But remember not to borrow more than your budget can comfortably support.
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