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Why Mortgage Interest Rates Will Go Down In 2023 In Texas

December 23, 2022 | By Reef Merhi
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Some people look at the housing market these days as all doom and gloom. But even if things seem rocky right now, inventory is tight, and eventually, income will catch up with inflation, and the market will self-correct. This means in 2023, we could see a resurgence in the housing market. Check out what the experts have to say about why mortgage interest rates will go down in 2023 in Texas and across the country. 

The Housing Market in 2023

The housing market has been under incredible pressure and has been changing at a remarkable rate. One of the biggest changes? We have been seeing mortgage rates that are DOUBLE what they were just a few years ago! And yet home prices are close to all-time highs, and staying there. 

So where are mortgage rates heading, and what does that mean for home prices in Texas? First, we need to understand interest rates and inflation a bit better. Once we know the “why,” we can better predict the “what” of interest rates in 2023. 

Who Determines Mortgage Interest Rates In The United States?

The Federal Reserve determines mortgage interest rates, and mortgage lenders typically follow their lead. The Federal Reserve (Fed) sets a target for the federal funds rate, which is the rate that banks charge each other for overnight loans. 

This number affects mortgage interest rates in two ways: 

  1. Mortgage rates are typically tied to the 10-year Treasury note rate, which is a benchmark set by the Federal Reserve.
  2. Mortgage lenders also use this rate as a reference point when pricing mortgage loans.

The Fed, Inflation, and Interest Rates

When the Fed increases or decreases interest rates, mortgage lenders will typically adjust their mortgage interest rates accordingly. However, inflation is also an important factor to consider when predicting mortgage interest rate changes. When inflation is low, mortgage lenders tend to lower mortgage interest rates as well.

Experts in the housing and finance industries believe that this current cycle of inflation will peak by the end of 2022. The Fed monitors spending and economic growth to make determinations about interest rates, and with one more recent hike, it looks like things will settle down.  

That’s because while the Fed can’t impact pricing spikes due to market disruptions like pipeline or supply chain issues, it can impact things like the core rate. The core inflation rate is the year-over-year percentage change of the price of a basket of goods and services, excluding food and energy. And the core rate for the PCE is currently around 4.9%. 

PCE is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. The PCE price index is known for capturing inflation across a wide range of consumer expenses and reflecting changes in consumer behavior. So when people hear that inflation is 8% and the Fed is targeting 2%, they may think things are really bad. 

But when you understand that from the perspective of the Fed, that number is actually 4.9%, which is much closer to that 2% goal - though still quite high in the short term. So what does this all mean for the average American looking to buy a home in 2023?

What to Expect from Mortgage Interest Rates in 2023

Given current trends, we can make some predictions about mortgage interest rates for 2023.

Inflation rates and mortgage rates are historically closely aligned. However, if you look at numbers for the past five years, you’ll see that the Fed was engaging to keep mortgage rates low throughout 2020 and 2021, even as inflation rates were rapidly rising. To do this, the Fed was purchasing a large amount of mortgage-backed securities.

However, once that ended, that made the interest rate hikes in 2022 seem that much more jarring to consumers but not to economists who’ve been tracking the trajectory of inflation and interest rates. 

As the Fed let the market take the lead, we saw interest rates rise. But now, inflation seems to have peaked, and we expect that rates will start dropping. Perhaps significantly! As the economy slows down and people start putting money into bonds and savings again, thanks to higher interest rates, we should see inflation start to drop. 

The Fed has now made it clear they are not purchasing mortgage-backed securities. Instead, they’ll allow some “running off.” Purchases have slowed, refinances have slowed, and the market is easing back to normalcy. 

Given the current inflation rate and the Fed’s interest rate policy, mortgage interest rates are likely to go down in 2023. Ready for the big prediction? By mid-2023, our experts believe that mortgage rates will be back down to below 5%. This means now could be a great time to start your home-buying journey! This is especially true for those in Texas, where mortgage rates could move down closer to 4%.

What Sort of Mortgage Should I Get?

The mortgage that you get will depend on your financial situation and the mortgage rate your lender offers you. When mortgage rates go down in 2023, it could be a good time to opt for an adjustable-rate mortgage (ARM). ARMs offer lower initial mortgage rates than fixed-rate mortgages, allowing you to take advantage of short-term mortgage interest rate dips. 

On the other hand, if you plan to stay in the same place for a while, you may want to opt for a fixed-rate mortgage. A fixed mortgage rate helps protect you from rising mortgage rates over time and ensures that your payments stay the same throughout the life of the mortgage.

But it isn’t always so straightforward. The right mortgage depends a lot on how long you plan to be in the home, if you think you will refinance, and a handful of other factors. 

Bad news? An adjustable-rate mortgage (ARM) can be difficult to get. And a zero-point mortgage can be tough to find, as well. However, the good news: you can now negotiate! Now that the housing frenzy has cooled down, there’s more flexibility for the buyer to work with the seller to come to good terms on a sale price and conditions. And if you plan to be in the home for more than two years, buying in 2023 is a much smarter investment than renting. 

Can a Lender Change Mortgage Interest Rates Before the Closing Date?

Yes, this is definitely possible. It is important to remember that mortgage rates can change often and suddenly, so you should always check with your mortgage lender before closing on a mortgage. Additionally, some mortgage lenders may require you to lock in an interest rate for a set period of time prior to the closing date in order to guarantee the loan terms. Make sure you ask about this when you are shopping around for mortgage lenders.

Generally speaking, if your interest rate is not locked, it can change at any time. Even if your interest rate is locked, your interest rate can change if there are changes to your application information or if you do not close within the rate-lock timeframe. That’s why it is so important to choose a mortgage lender with incredible customer service. Because in this housing market, you may need answers quickly! 

How Much Do Interest Rates Actually Differ Between Brokers/Lenders?

The mortgage rate that you qualify for can vary depending on the mortgage broker or lender you use and your individual financial situation. You may find that two different mortgage brokers offer very different mortgage rates even if they originate from the same mortgage lender. It is always a good idea to shop around and compare mortgage rates between multiple lenders in order to get the best deal possible.

However, be wary of “too good to be true" offers. Inaccurate rate quoting can make it appear that a lender's rate is lower than others and maybe even lower than the overall market. Lenders are usually within .25 percentage points of each other. 

If one lender's rate stands out from all the others, it may be a misquote. That's why finding a reputable lender who can give you accurate rates, lock in the rate, and close your mortgage quickly makes all the difference. If you want to get a mortgage in Texas, trust the experts at Texas United Mortgage. 

Get Started on Your Homebuying Journey

If you’re looking to buy or refinance in 2023, understanding the predictions for mortgage interest rates is a great place to start. Understanding mortgage interest rates, how they’re determined, and what to expect can help you make the best decision for your unique financial situation. Researching mortgage lenders, comparing mortgage rates and terms, and knowing your options will help ensure that you get the best mortgage rate possible and make the right choice for your future.

With mortgage rates projected to go down in 2023, now is a great time to start planning ahead. Whether you’re looking to buy or refinance, understanding mortgage interest rates can help you make an informed decision that will save you money in the long run. So don’t wait – start your mortgage journey today!

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