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Mortgage interest rates expected to drop in 2023—here’s by how much

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After home financing costs nearly doubled in 2022, some relief is in sight for potential homebuyers in 2023.

The interest rate for a 30-year fixed-rate mortgage in the U.S. is expected to drop to 5.25% by the end of this year, according to a forecast by the financial services website Bankrate. That’s 1.49 percentage points lower than the current rate, and nearly two percentage points lower than 2022’s peak rate of 7.12%.

A slowing economy could lead to lower mortgage rates

While rate hikes can reduce inflation by making it more expensive to borrow money, they also discourage investment. This can shrink the economy, and perhaps trigger a recession in which many people lose their jobs.

And since mortgage interest rates are largely influenced by the overall state of the economy, they typically decrease during a recession.

“With the Fed maintaining an aggressive posture and inflation still high, mortgage rates will roller coaster up and down during the first half of the year before a more substantive slide takes hold in the back half of 2023,” says Greg McBride, chief financial analyst at Bankrate, who predicts a “notable pullback” on mortgage rates as inflation trends lower.

A drop in mortgage rates would be positive news for potential homebuyers, as it will reduce their monthly homeownership costs.

However, the projected dip in mortgage rates won’t be anything like pre-pandemic lows, and a chronic undersupply of homes will keep prices high, so many potential homeowners will remain on the “sidelines” in 2023, says McBride.

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Olamilekan A.

I'm Olamilekan Atolagbe, I'm fueled by my passion for understanding the nuances of cross-cultural publishing. I consider myself a "forever student," eager to both build on my academic foundations in programming and computer science and stay in tune with the latest content publishing strategies through continued coursework and professional development.
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