Will Mortgages Get Less Expensive in 2023?

It's a really tough question to answer.

There's a reason so many potential home buyers have struggled to become property owners this year. Between limited inventory and soaring home prices, affordability issues and a lack of choices have forced many buyers to pause their house-hunting plans.

Compounding the issue is an unwanted uptick in mortgage rates. Last year, borrowers with solid credit could snag a 30-year mortgage at around or even below 3%. In September, rates have been hovering in the upper 5% range, and it doesn't seem like they're about to drop back down to 2021's levels anytime soon.

But while we know what mortgage rates look like today, figuring out what they'll look like in 2023 is a bit tougher. At this point last year, a lot of people were making predictions about mortgage rates potentially topping out at the 4% mark in 2022. And now we know those predictions were clearly way off.

As such, it's really difficult to put a number on what mortgage rates might look like come 2023. But what we can do is discuss the factors that could cause them to rise -- or fall.

Why mortgage rates might go up

Inflation has been wreaking havoc on consumers' finances since mid-2021, and at this point, the Federal Reserve has had enough. That's why it's been implementing interest rate hikes -- it wants to make borrowing more expensive so consumers curb their spending enough to let supply catch up to demand.

If the Federal Reserve keeps raising interest rates, there's reason to believe mortgage rates will follow suit. As a point of clarity, the Fed doesn't set mortgage rates, or any consumer borrowing rates, for that matter. But when it raises its federal funds rate, which is what banks charge one another for short-term borrowing, those higher costs tend to get passed on to consumers.

Since inflation is still sky-high, we can bet on more rate hikes on the part of the Fed. And if they're drastic enough, they could drive mortgage rates upward in 2023.

Why mortgage rates might go down

If inflation starts to cool, the Fed might ease up on its interest rate policies. And if that happens, borrowing rates for mortgages might start to come down.

Also, if mortgage demand decreases a lot in 2023, mortgage lenders might start to get more competitive on rates in an effort to drum up business. We already saw that happen in 2020, so that's a possibility we shouldn't discount.

Should you plan to buy a home in 2023?

If you have a steady job, a solid emergency fund, and plenty of money to put down on a home, then you may find that 2023 is a good time for you to buy -- even if mortgage rates don't come down at all. While borrowing rates may be higher than you'd like them to be, there's a good chance housing inventory will increase in 2023. That could, in turn, bring home prices down a lot.

On the other hand, if you're not in such a stable place financially at this point in 2022, then buying a home in 2023 may not be a good idea, regardless of what mortgage rates look like. So while it's definitely not a bad idea to keep tabs on how rates are trending, a more important thing you should be tracking is your personal financial health. The last thing you want to do is buy a home when you're not really ready -- and struggle to keep up with it after the fact.