Where Will Mortgage Rates Be a Year From Now? It's Lower Than You Think

Talk about some good news.

If you're a prospective home buyer who's grown frustrated with today's sky-high mortgage rates, you're no doubt in good company. At the start of the year, it was possible to sign a 30-year fixed mortgage at around 3%. These days, that same loan product is hovering in the 7% range. And there's no indication that buyers will get relief on the mortgage rate front between now and the rest of the year.

But things could end up looking different come 2023. In fact, some experts feel that while mortgage rates won't drop back down to 2020 or 2021 levels anytime soon, they could fall a lot from where they're at today.

Mortgage rates could fall to 5.4%

Many economists believe the U.S. is headed for a recession. Aggressive interest rate hikes on the part of the Federal Reserve have the potential to fuel a drastic decline in consumer spending. And that could lead to a prolonged period of general economic distress.

Clearly, that wouldn't be a good thing from an unemployment perspective. But it could actually end up being a good thing for home buyers. A recession has the potential to lead to a downtick in mortgage rates.

In 2020, when the pandemic fueled a massive uptick in unemployment, mortgage lenders almost immediately started slashing borrowing rates, to the point where they reached record lows that summer. We're unlikely to see mortgage rates drop to the same extreme in 2023. But could rates fall significantly compared to where they are today? Absolutely.

In fact, the Mortgage Bankers Association, which tracks mortgage applications and demand, thinks mortgage rates could fall to around 5.4% by the end of 2023. Compared to the rates we saw at the end of 2020 and 2021, that number may not seem all too impressive. But compared to today's rates, it's very much an improvement.

Should you plan to buy a home in 2023?

If you're in a strong financial position to buy a home right now and the main thing stopping you is higher borrowing costs, then you may find that 2023 is an easier time to move forward with a home purchase. Not only might mortgage rates come down, but also, home prices could decline if real estate inventory finally picks up.

On the other hand, if a recession hits in 2023 and it winds up costing you your job, then you may need to put your plans to purchase a home on hold. Not only is it a bad idea to take on a major expense at a time when you're without a steady income, but you're likely to have trouble getting approved for a mortgage if you don't have a job.

All told, 2023 may or may not end up being a better year for home buyers -- yourself included. But only time will tell what the year has in store for mortgage rates, so it's a good idea to keep tracking them if you're serious about homeownership.