The housing market braces itself for higher mortgage rates again – 8 experts see interest rates rising this year

Builders and real estate agents alike celebrate sign of life in the US real estate market. This will happen when a mild house price correction coupled with falling mortgage rates 7.37% in early November to 5.99% in February improves affordability a bit just as the market enters its busy season.

But these builders and agents may want to avoid getting too excited: Mortgage interest rates are already rising again.

On Friday, the average interest rate for 30-year fixed-rate mortgages rose again to 6.8%. Rates have risen steadily in recent weeks as financial markets, having seen stronger than expected economic and inflation data, are pricing in a higher chance of the Fed keeping interest rates higher for longer.

That mortgage rate of 6.8% is the highest recorded by Mortgage News Daily since early November. It also means that affordability will deteriorate again.

A borrower who took out a $500,000 mortgage at a fixed rate of 5.99% in early February 2023 would have received a monthly principal and interest payment of $2,995. At an interest rate of 6.8% (ie, the average interest rate on Friday), a borrower would receive a monthly payment of $3,260 on a loan of the same size.

Check out this interactive chart on Fortune.com

At first glance, a mortgage rate of 6.8% is not unusual historically. However, this underestimates its effectiveness. You see, it’s less about the numeric mortgage rate and more about the total monthly mortgage payment as a percentage of new borrowers’ income. And when you take everything into account (ie house prices, income and mortgage rates), the Says the Federal Reserve Bank of Atlanta, Housing affordability is as bad today as it was just before the housing bubble burst in 2007.

The chart below, which shows the year-on-year change in mortgage rates, illustrates this how housing affordability deteriorated so rapidly over the past year.

Check out this interactive chart on Fortune.com

As long as housing affordability is under this pressure, many real estate economists and analysts believe it will be difficult to sustain a strong recovery in home sales.

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Looking ahead, economists say there are three levers that can improve housing affordability: rising incomes, falling home prices and falling mortgage rates.

Of these three levers, mortgage rates can have the greatest impact in the short term. We saw exactly that when falling mortgage rates were reflected between early November and early February slightly improved activity level. The opposite could happen in March and April as mortgage rates push further towards 7%.

Where do mortgage rates go from here? To get some hints wealth Once again Mortgage rate forecasts tracked down by eight leading market research firms (wealth did a similar roundup for 2023 home price predictions). Keep in mind that during an inflationary run, it’s difficult to predict future mortgage rates.

The Association of Mortgage Banks: The DC based trade group predicts that the 30-year fixed-rate mortgage rate will be average 5.2% in 2023. Beyond this year, the group expects mortgage rates to average 4.4% in both 2024 and 2025.

Bank of America: Researchers at the investment bank expect falling mortgage rates 5.25% by late 2023. “Mortgage rates are likely to have peaked in 2022, and the historically wide 30-year mortgage rates and 10-year Treasury yields between them could narrow into 2023. Our structured products team expects 30-year mortgage rates to fall to around 5.25% in 2023 as spreads normalize amid lower Treasury volatility,” BofA researchers wrote Jan. 11.

MorganStanley: The agency MBS strategists at MorganStanley believe mortgage rates will fall 6% until the end of 2023. (Here is the investment bank’s home price outlook.)

Fanny Mae: economists at Fanny Maeestablished by the US Congress in 1938 to provide affordable mortgage financing, predict that the 30-year fixed-rate mortgage rate will be average 6.3% in 2023 and 5.7% in 2024.

Freddie Mac: economists at Freddie Mac, which, like Fannie Mae, was also chartered to provide affordable mortgage financingpredict that the 30-year fixed-rate mortgage rate will be average 6.4% in 2023.

Moody’s Analytics: Moody’s Financial Intelligence department forecasts that the 30-year fixed-rate mortgage rate will be average 6.5% through most of 2023. (See Moody’s Analytics regional and national home price outlook Here.)

Goldman Sachs: The investment bank predicts that the 30-year fixed-rate mortgage rate will end in 2023 6.5%. “We expect 30-year fixed-rate mortgage rates to rise to 6.5% by year-end, reflecting lower mortgage spreads due to a recovering MBS market – particularly for securitizations with explicit or implicit government guarantees – but higher Treasury -returns. We also note that the rapid decline in mortgage origination, particularly for refinancing, has prompted some lenders to halt or limit lending. This has the potential for remaining lenders to increase their margins by driving up mortgage rates,” he wrote Goldman Sachs Researchers on January 23. (You can find the latest home price forecast from Goldman Sachs Here).

Immobilienmakler.com: Economists at the Home Listing Site believe in the 30-year fixed rate mortgage becomes average 7.4% in 2023.

Do you want to stay up to date housing market correction? follow me Twitter at @NewsLambert.

This story was originally featured on Fortune.com

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