AUSTIN — The annual average Mortgage interest rate will likely be higher in 2023 than it was in 2022, according to Joshua Roberson, a lead data analyst at Texas A&M University’s Texas Real Estate Research Center, or TRERC.
Experts at TRERC offered 2023 market predictions as the new year approaches.
They acknowledged that current national and international factors such as China’s zero-COVID policy impacting the global supply chain, Russia’s war against the Ukraine, and the U.S. Federal Reserve’s attempts to control inflation through increased interest rates will continue to be major events that have large influence over Texas’ economy. Nonetheless, they pulled together their expertise to make some educated guesses.
Adam Perdue, a research economist, said inflation will likely stay elevated through 2023, adding that if a recession occurs, consumer prices would fall faster than otherwise due to a lack of consumer demand related to a loss in consumer income.
Perdue also predicted that employment growth will be moderate.
“Texas has now more than recovered jobs lost during COVID and has returned to the long-term trend line of employment. Going forward, the state is expected to return to the longer-term trend rate of growth,” he said.
Roberson said that the recent increase in mortgage interest rates has been in response to both high levels of inflation and increases in interest rates from the Federal Reserve to combat inflation. Therefore, interest rates will largely follow a similar path as inflation.
Additionally, he said existing single-family rent and price growth will moderate with the potential to turn negative on a year-over-year basis.
He added that existing-home sales will likely be lower in 2023 than they were in 2022, as elevated mortgage rates combined with elevated asking prices will slow sales even as price growth moderates.
“The rapid pace of rent and purchase price appreciation over the last two years was never sustainable and would have been forecast to slow even in the absence of other headwinds,” Roberson said.
Charles Gilliland and Lynn Krebs, research economists, anticipate that 2023 will also have fewer rural land transactions than 2022.
Rising interest rates will again continue to lower demand, while a recession would place further downward pressure on transactions.
“Prices for lower-quality land will fall, while prices for high-quality properties will remain steadier,” they said.
The predictions come on the heels of yet another Fed rate hike last week of half a percentage point. Prior to that, the feds raised the rate by three-quarters of a point for four consecutive increases - the most aggressive move to tamp down inflation since the early 1980s.
Officials also indicated then that they expect rates to remain high throughout 2023.
“Inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases,” Federal Reserve Chairman Jerome Powell said following the latest hike. “But it will take substantially more evidence to have confidence that inflation is on a sustained downward path.”