A Belated Gift to Holiday Homebuyers: Lower Mortgage Rates

Mortgage rates declined this week, with the average rate on the 30-year fixed mortgage falling from 6.77% a week ago to 6.65%. Interest rates declined across all fixed-rate home loan products, while adjustable mortgage rates stayed about the same.

Here are the current average mortgage rates, without discount points unless otherwise noted, as of Dec. 22:

“Heading into the holidays, mortgage rates continued to move down. Rates have declined significantly over the past six weeks, which is helpful for potential homebuyers, but new data indicates homeowners are hesitant to list their homes. Many of those homeowners are carefully weighing their options as more than two-thirds of current homeowners have a fixed mortgage rate of below 4%.”

Sam Khater, Freddie Mac’s chief economist, in a Dec. 22 statement

This recent decline in mortgage rates is welcome news for homebuyers, but economists have mixed opinions on where interest rates are headed. Freddie Mac puts the average 30-year fixed mortgage rate at 6.4% in 2023, while Realtor.com forecasts a 7.4% rate next year.

But the most bullish mortgage rate prediction comes from the Mortgage Bankers Association, which says that long-term interest rates have already peaked. The latest MBA forecast expects the 30-year mortgage rate to average 5.2% in 2023 before falling to 4.4% in 2024 and 2025.

With a two-point variation in mortgage rate forecasts from industry experts, it’s nearly impossible for consumers to plan ahead if they want to buy a home next year. Although it’s always a gamble to try to predict economic conditions, it’s even more difficult when expectations vary so widely.

The prospective homebuyers who have taken a wait-and-see approach to the housing market and put off buying a home in 2022 will be among the first to know where mortgage rates are headed in 2023.

The holiday season tends to be a bitterly cold time in the housing market as buyers and sellers alike are busy (and cash-strapped) with shopping for Christmas gifts, traveling to visit family and hosting festive celebrations. This year, the fourth quarter is poised to be even chillier than usual as mortgage rates continue to push prospective homebuyers beyond the affordability threshold.

But at a time when home sales typically decelerate, motivated buyers may have the chance to shop for a home with little to no competition during the holiday season. In a less competitive market, homebuyers may be able to negotiate the sales price as well as seller concessions such as interest-rate buydowns. Additionally, buyers may not have to waive appraisal, financing or home inspection contingencies.

Weak home sales have already pushed prices downward in recent months, with the median existing-home sales price falling from over $400,000 during the summer to about $370,000 currently, per data from the National Association of Realtors.

If you have the ambition to brave this frigid winter homebuying season, it could pay off to shop for a house now. Mortgage rates have fallen nearly three-quarters of a percentage point over the past six weeks, and that drop could translate to lower (and more affordable) monthly housing payments. Pair lower rates with falling home prices, and mortgage affordability may be within reach.

Here’s one final tip for a merry homebuying season: Shop around with multiple mortgage lenders to compare interest rates before applying for a home loan. About one-third of buyers obtain only one rate quote, according to Fannie Mae’s National Housing Survey, which is a mistake that could cost you hundreds of dollars per year and thousands over the life of the loan. Be sure to keep your comparison shopping within a 45-day window to lessen the impact to your FICO credit score.