2023 Mortgage Interest Rate Outlook

Where mortgage interest rates will go in 2023 will be driven by where the inflation rate goes.

If the Fed’s large increases in the Fed Funds rate which started last June and continued at every FOMC (Federal Open Market Committee) meeting since then, result in the markets seeing declining inflation rates in each new month’s reports of early 2023, then this will take the pressure off the Fed and allow them to slow down and eventually stop future rate increases, possibly by this spring.

If this scenario happens, it will reduce the fear that the high inflation rates have become ingrained into our economy, and investors will be more confident that inflation rates will continue to trend down to the Fed’s target rate. If this scenario were to happen, this would create upwards pressure on MBS (Mortgage-Backed Security) prices, which would then mathematically push down mortgage interest rates. Conversely, if we do not see a clear decline in inflation over the next 90 days, that would put increased pressure on the Fed to keep doing large rate increases at each of their FOMC meetings. In this scenario, bond investors would begin to believe that inflation rates will stay high for longer than they previously were assumed to be, and this would then create downward pressure on MBS prices, pushing up mortgage rates.