Mortgage rates have been a hot topic for most of 2022. Rising rates have caused the housing market to pull back from its chaotic rise throughout the last couple of years.
After topping out above 7% in early October, mortgage rates have been slowly creeping back down since then to where they reside now in late November, at a 6.65% national average for a 30-year conventional loan.
Many people are wondering where mortgage rates will go in 2023 and how they will impact the real estate market going forward. This is a complicated question with many moving parts and in many ways you would need a crystal ball to accurately predict the answer.
It just so happens that Barry Habib, Founder of MBS Highway, is a three time winner of the annual “Zillow and Pulsenomics Crystal Ball Award” for the most accurate real estate forecaster and he recently updated his prediction for what rates will do in the coming months (Spoiler alert: it's good news).
Below is the video of Barry’s recent interview on REsource TV’s YouTube channel -- https://www.youtube.com/@TheresourceTv -- where he discusses his prediction for mortgage rates, why he believes they will be moving lower, and how home buyers and sellers can take advantage now. The video is 27-minutes long, so if you’d prefer our summary of the video, just keep scrolling:
One of Barry’s key predictions in the video is that inflation, and thus mortgage rates, will both be falling soon as consumer prices come back down to earth. According to Barry, “Late this year, fourth quarter this year (2022), first quarter next year (2023), we should be in a position to see a lot of improvement and probably by sometime late, very late this year or early next year, we should be able to see mortgage rates dip under 5%.”
Some evidence that this may already be starting to happen can be seen in Truflation.com's inflation gauge which shows consumer prices have already been falling steadily since June with the Truflation rate now at 6.35% (as of 11/30/22)
If the predicted mortgage rate drop were to occur, we would likely see a couple of scenarios play out. First, because mortgages have been issued in the high 6% to low 7% range for the last several months, borrowers would likely move to refinance if rates fall below 5%. This could create a mini-refinance boom.
Secondly, with home inventories still at historically low levels, we could see another buying binge that sends home prices moving higher once again and limiting options for buyers.
With all of this, Barry believes home buyers may have the “perfect opportunity in housing” today. If a buyer believes that mortgage rates will fall as predicted, they could use the current softening in the housing market to negotiate with a seller for either a permanent mortgage rate buydown or temporary rate buydown, often known as a 2-1 Buydown Program.
A rate buydown could potentially allow a buyer to get the house they want today with a discounted mortgage rate that they could then refinance to a permanent fixed rate if and when mortgage rates fall.
I recently spoke with Southern Indiana mortgage expert Brad Sea of Kentuckiana Mortgage Group about Barry Habib’s prediction and strategy suggestion. And while he couldn’t affirm where rates will be in the coming months, he did suggest that KMG’s in-house rate buydown programs are growing in popularity with home buyers right now. According to Brad, “We have a few different buydown options to help home buyers lower their rate and give them flexibility. One option even lets borrowers shave 3% off their interest rate at the start of their loan.”
Brad did emphasize that a rate buydown isn’t right for every borrower and that buyers must meet certain criteria to qualify, but that a buydown could be an excellent way to lower your rate and overall financing costs given the current rate environment.
There are certainly a lot of moving parts in the current economy that could impact rates, higher or lower. However, Barry Habib seems to have a good grasp on the various pieces of the puzzle and if his prediction plays out, his rate buydown, then refinance strategy could turn out to be a lucrative strategy for homebuyers. And if it turns out he’s wrong, a rate buydown option would offer buyers a lower rate and mortgage payment at least temporarily.
As always, if this is an option you wish to pursue, we encourage you to do your own due diligence and gather more information from one of our local mortgage experts.
If you have further questions about mortgage buydown options or other real estate related questions, reach out to us at 812Living@gmail.com.
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