Will California Mortgage Rates Go Down in 2023?

The average rate for a 30-year fixed mortgage loan in California and nationwide rose above 7% this week, for the first time in 20 years. That’s based on a recent report by Freddie Mac, which we’ll get to in a minute. This has a lot of home buyers wondering the same thing:

Will California mortgage rates go down in 2023, or continue to rise?

The truth is, no one can predict future interest rate trends with complete accuracy. There are too many variables involved over the long-term. But a pair of recent forecasts suggest that California mortgage rates could in fact go down in 2023, compared to where we are now.

Will California Mortgage Rates Go Down in 2023?

As mentioned above, the average rate for a 30-year fixed mortgage loan surpassed 7% this week. According to Freddie Mac, rates averaged 7.08% during the week ending on October 28, 2022.

This is one of several factors that has caused the California real estate market to cool down over the past few months. The red-hot housing market conditions we saw during late 2020 and all of 2021 have slowed into a much more “casual” pace. Today, home buyers across California have more bargaining power and a more relaxed pace when it comes to house hunting.

But getting back to mortgage rates, will they keep rising or go down in 2023? Here are some education opinions on the subject…

Two Forecasts Predicting a Drop Next Year

Along with their latest survey report, the research team from Freddie Mac also published a revised forecast for mortgage rates and other housing metrics. And it seems they expect mortgage rates in California and nationwide to drop a bit over the coming months.

Specifically, they predicted that 30-year mortgage rates would average 6.6% during the first quarter of 2023, a slight decline from where we are right now. They predicted further declines throughout 2023, with mortgage rates averaging around 6.4% for the entire year.

To quote Freddie Mac’s October 2022 forecast:

If spreads gradually return closer to historical averages, then mortgage rates will decline modestly over the next year. This is reflected in our forecast which has rates dropping from an average of 6.8% in the fourth quarter of 2022 to 6.2% in the fourth quarter of 2023.

The Mortgage Bankers Association expects an even bigger decline in mortgage rates between now and mid-2023. In a new forecast published earlier this month, the industry group predicted that 30-year mortgage rates would dip into the low 6% range during the first quarter of 2023. They expect rates to drop to around 5.4% by the end of 2023.

But it bears repeating: these long-term forecasts are difficult, due to all of the variables involved. So it might not be wise to try to “time the market” based on these predictions. If you feel like now is the best time for you to buy a house, and you can afford the monthly payments, it’s probably best to proceed with your purchase.

Two Ways to Offset Higher Mortgage Rates

Mortgage rates today are higher than they’ve been in quite some time. As a result, a lot of home buyers are looking for ways to shave some points off their interest rates, thereby reducing their monthly payments. Two of the most common strategies for doing this are (1) paying points and (2) using an adjustable-rate loan.

Strategy #1: Using Discount Points

Paying “discount points” at closing can help you secure a lower interest rate. It’s a trade-off that’s best suited for a long-term homeownership situation.

With this strategy, you’re basically paying more money upfront, at closing, in exchange for a lower rate. If you stay in the home long enough, your savings will eventually surpass the amount you paid in the form of points. We’ve covered this topic in a separate blog post, so be sure to check out this related article on discount points.

Strategy #2: Using an ARM Loan

Using an adjustable-rate mortgage loan, or ARM, could also help you secure a lower interest rate. Generally speaking, products like the 5-year ARM loan tend to have lower average interest rates than the long-term fixed mortgages. You can see this by referring to the “Primary Mortgage Market Survey” published each week by Freddie Mac.

A lot of home buyers in California use ARM loans to secure a lower mortgage rate for the first few years, and then end up refinancing or selling before the rate starts to adjust.

With mortgage rates in California on the rise, we are seeing an increase in the percentage of adjustable-rate mortgage loans. One report showed that ARM share rose to 12.8% of all loan applications in October 2022, which was the highest share since March of 2008.

This is a common pattern that occurs whenever interest rates start to rise. In such times, adjustable mortgage products tend to become more popular among borrowers.

Need a loan? Bridgepoint Funding is located in the Bay Area but serves the entire state of California. Please contact us if you have mortgage-related questions or would like to apply for a loan.