Featuring the perspectives of:

Mike Balzotti, Director of Education, Russ Lyon Sotheby’s International Real Estate

Tim Brigham, Union Home Loans

Jeremy Collett, Executive Director of Capital Markets, Guaranteed Rate

Mo Hamideh, Branch Manager, Nations Lending

Lizy Hoeffer, CrossCountry Mortgage

Will interest rates continue to rise next year, and what impact will rates have on the market?

Balzotti: Fed policy is unpredictable. The educated guess is that they will moderate, but the fly in the ointment is the Fed’s apparent commitment to use interest rates to fight inflation.

Hoeffer: I believe interest rates will continue to be volatile following inflation increases and decreases. I am hoping they will stabilize come March.

Brigham: No one knows for sure but I like to listen to analysts like Barry Habib and even Fannie Mae describing that we should see large decreases in the near future.

Hamideh: Much smarter people that are considered industry experts believe that rates will decline in 2023. What the Feds have been doing to combat inflation will eventually knock down inflation. Inflation is the main enemy of mortgage rates. Mortgage rates will decline once inflation starts to drop.

Collett: We can make educated guesses, but rates are hard to predict. The Fed just raised their federal funds rate to 3.75%-4% on Nov. 2, indicating that more rate hikes are coming. We think that this cycle of aggressive rate hikes is coming to an end soon, dependent on inflation coming down. We could see the Fed raising rates by 0.5% at their December meeting, then 0.25% in 2023, until their rate sits at 4.75%-5%. If that happens, mortgage rates could fall.

What buyers should remember is that they can “marry the home, date the rate.” In other words, find a home they love and be prepared to refinance when mortgage rates come down.

What should homebuyers be watching regarding mortgages? 

Collett: First-time homebuyers and communities that have traditionally suffered with affordability issues should keep a close eye on recent enhancements made by Fannie Mae and Freddie Mac. The current administration and Federal Housing Finance Agency (Fannie and Freddie’s regulator) have been laser-focused on opening up affordability and creating products that allow for further homeownership opportunities for this segment of the market.

Just this week, they announced that four groups will see their upfront loan fees — also called guarantee fees or “G-fees” — eliminated when using conventional loans backed by Fannie Mae or Freddie Mac. These groups include low- to median-income first-time homebuyers, buyers using the HomeReady or Home Possible loan programs, buyers using the HFA Advantage or HFA Preferred loans and single-family loans that fall under the Duty to Serve program.

Brigham: 2/1 buydown is a complete game changer. You should absolutely learn as much as you can on how to decrease your payment in this higher rate environment.

Hoeffer: They should be concentrating on the monthly payments.

Hamideh: There are many programs that are either not available to all lenders/bankers or the mortgage professionals are just good at promoting such products. Homebuyers should be comparing with various lenders regarding these programs. Consumers need to get to know all options that are available to them.

What will be the biggest challenges and opportunities for lenders in 2023? 

Hoeffer: Cutting expenses and keeping focused on systems and future business. Challenges will be fewer transactions in a hyper competitive rate environment.

Hamideh: Some lenders are and will suffer in 2023 as a result of what happened during the second half of 2022. Lenders that built a refinance business model have and will continue to suffer the most. We do focus on our purchase business and cater to the refinance business as an added pillar of revenue.

Brigham: Liquidity. I am hearing reports on some lenders having real challenges in their lines and liquidity. This will be a slow death as we have seen in the past.

Collett: There are several hurdles lenders will face in 2023, many of which carry over from 2022. The fluctuating rate environment continues to be a challenge for everyone, and I expect that will continue into 2023.

In addition to interest rate volatility and uncertainty around how the Fed will fight 40-year highs in inflation, lenders will still have to contend with profitability and cost control in this new, low-volume environment. We believe 2023 will be a year of consolidation for lenders, so expect a large uptick in mergers and acquisitions among lenders.Liquidity remains an issue.

The secondary market for the most part has been decimated by the enormous spike in interest rates. Falling deposit rates, lower asset prices and snail-paced runoff rates have created a major liquidity crunch that doesn’t appear to be going away anytime soon.

Different types of loan products, like ARMs and temporary buydowns, can help buyers ease into homeownership and take advantage of lower or more stable home prices without a long-term rate commitment. When rates come down, opportunities exist to lock in for the long term.