Let’s Leave 7% Mortgage Rates in 2022

We want to help you make more informed decisions. Some links on this page — clearly marked — may take you to a partner website and may result in us earning a referral commission. For more information, see How We Make Money.

(This article was originally published in NextMove, our weekly newsletter on the housing market. Sign up for it using the box below.)

It’s December, and everyone seems to be reflecting on what they did this year.

This is Jon Reed with NextAdvisor, and in 2022 I wrote the phrase “mortgage rates rose,” or some variation of it, a lot.

But not lately.

Since topping 7% in October and early November, the average 30-year mortgage rate has started to drop. It hasn’t fallen by much, but it’s declined through two consecutive months of easing inflation, even despite a Federal Reserve rate hike

It’s still early, so any sign that inflation isn’t actually slowing could send those rates back up. Fortunately, there’s hope this trend will turn around soon, with experts telling my colleague Katherine Watt that “the worst is over” for mortgage rates.

If you’re in the market for a home in 2023, you can look forward to better mortgage numbers. And no, they probably won’t drop to the 3% range where they sat before, but an interest rate of 5.5% is a lot better than 7%. Lower rates make homeownership attainable for more buyers.

Here are some things to keep in mind as we head into the new year:

It’s your payment that matters. The interest rate is just a means to an end. What you really need to watch is your monthly payment. If you can afford that (and have some wiggle room in case of a recession or other potential bad times ahead), then you can afford the home.

There are ways to get lower rates, but they come with trade-offs. One way is to get an adjustable-rate mortgage. These usually come with a lower fixed rate for the first several years, followed by a rate that changes with the market every year after that. If you aren’t planning on living in the home more than a few years, this can be a great way to save money, as long as you understand the risk that the rate could go up. Another way to get a lower rate is to pay mortgage points upfront to your lender – trading cash now for a lower rate.

Don’t rush. Predicting the economy is like picking the winners of sporting events. You think you know who will win, and then the exact opposite happens. In fact, nobody knows if mortgage rates will keep dropping or if the housing market will get better. Don’t try to time the market — just make the decision to buy a home when you’re financially ready.

This past year was bad for homebuyers. There’s hope – and opportunity – for 2023 to be better.