The real estate market is a delicate balance between supply and demand. There are a number of external factors that can disrupt this balance, but one of the most important is mortgage rates. Many people probably do not realize that the unprecedented seller’s market we had over the last two years was largely driven by historically low interest rates.

In 2020, 30-year fixed mortgage rates dropped below 3% for the first time since Freddie Mac began tracking the rates in 1971. This made mortgage payments extremely affordable, leading many buyers to purchase their first home or upgrade from the one they were in. With an influx of buyers, housing demand skyrocketed. As we now know, such buyer frenzy can drive up prices significantly, and heavy competition makes it extremely difficult to win the bid on a house.

Now, in late 2022, as interest rates climb, the market is finally shifting, and you may already be wondering what to expect in 2023. In this post, we will discuss mortgage rates, how they behave, and how they can affect the real estate market heading into the new year.

What influences mortgage rates?

The Federal Reserve plays an important role in the housing market, even though they do not set mortgage rates themselves. Feds control various rates through monetary policy, which indirectly affects home loans. According to, mortgage rates are most closely tied to the 10-year Treasury rate, as these numbers tend to mimic each other when they increase or decrease.

The Feds are primarily interested in keeping the economy balanced, so they tend to lower rates when there is a risk of recession. Before COVID-19 shut down most of the country, 30-year fixed mortgage rates were already in the 3% range. However, the economy came to a screeching halt when COVID-19 hit mainstream media. As businesses across the country feared recession, it became crucial to stimulate the economy by making it cheaper to borrow money. Throughout 2020, mortgage rates steadily declined until they hit a national average of 2.68% in December of that year (Freddie Mac).

Consequently, inflation became the new norm as housing prices skyrocketed, leaving many buyers without the means to compete. However, throughout 2021, the rates remained low, with the annual national average for a 30-year fixed loan being 2.96% (Freddie Mac). As inflation and competition continued into 2022, fear of a housing shortage set in. All across America, supply hit a record low, and in turn, the Feds began raising rates.

What are the mortgage rates now?

As we settle into the 2022 holiday season, 30-year fixed mortgage rates are over 7% and 15-year fixed rates are over 6% ( What does this mean? Let’s see how a rate change from 3% to 7% would affect a mortgage payment.

If you were purchasing a $250,000 home with a 20% down payment, you would be paying $50,000 in cash and borrowing the other $200,000. At a 3% interest rate on a 30-year fixed loan, your monthly payment would be $843.21 before taxes and insurance. In comparison, a 7% rate on the same loan would increase your monthly payment to $1,330.60 (

This comparison speaks volumes when you realize that someone buying the same house at the same price would pay $487 more per month, or over $5,800 more per year due to interest rates.

What will mortgage rates do in 2023?

It is impossible to predict the future with absolute certainty, but when it comes to mortgage rates, they typically follow a pattern. As we have seen in the past, rates tend to rise when demand is too high, and they decline when demand is too low.

Mortgage rates in 2022 are undoubtedly high in order to combat the recent spike in inflation. So far, it has worked. Prices are no longer rising and competition among buyers has all but fizzled out. In fact, many home buyers have given up their efforts to purchase a home this year. The question is, will this shift in the market be enough to bring the rates back down?

We must first acknowledge that a housing shortage still exists. Even though house prices are falling, listings are still being grabbed by buyers within days of hitting the market (NPR). This suggests that a drop in interest rates would lead to another influx of buyer demand. However, experts agree that if the Feds continue to raise interest rates at this pace, a recession is still possible.

With economic balance as the goal, the most likely scenario heading into 2023 is that mortgage rates will increase, but at a much slower pace. 30-year rates will probably peak at or just above 8% before flattening out and remaining somewhere between 6% and 8% for the remainder of the year. These predictions are assuming that a recession does not occur.

Next Steps

If you are considering buying a home in 2023, the first step you should take is to determine your budget. Our agents here at Sheridan Solomon and Associates can help you determine the average value of homes that meet your  specifications. Then, you should talk to a local lender about your desired price range. They will tell you what interest rate you qualify for, how much you will need for a down payment, and how much your monthly payment would be.

Keep in mind, mortgage rates are not likely to go down immediately in the new year. If you are waiting to buy a house until the rates decrease, you might miss out on a great house or opportunity. Additionally, if you buy now and then rates drop, you can refinance your loan.

If you would like to speak with one of our expert agents about your real estate goals, give us a call or reach out on our website,

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