Homes are less affordable than at any time since 2008

At the end of the day, borrowers can pull the trigger on a particular home only if the monthly mortgage payment is below a given lender’s max debt-to-income ratio. If house prices and mortgage rates move up too quickly, then would-be buyers can lose eligibility altogether.

This isn’t just a hypothetical, it’s exactly what happened to millions of potential homebuyers over the past year.

According to the Federal Reserve Bank of Atlanta, the pandemic has coincided with a historic deterioration in housing affordability. That’s the result of mortgage rates spiking from 3% to over 6% in 2022 just after U.S. home prices spiked 41% during the Pandemic Housing Boom.

In fact, housing affordability as measured by the Atlanta Fed in December 2022 was worse than at any point in the lead-up to the housing bubble in 2008 (see chart below).

This swift deterioration in housing affordability has forced many buyers and sellers alike to put their moves on hold. It has also spurred home price corrections in many Southern and Western housing markets.

How can housing affordability be improved heading forward? There are really only three levers that can help here: rising incomes, falling home prices, or falling mortgage rates.

But the truth be told, the lever with the best chance of making a difference is mortgage rates. Unlike home prices—which are historically loath to fall—mortgage rates are volatile and can swing down quickly if financial markets were to loosen. And unlike incomes—which could soften if a recession were to hit—mortgage rates would likely fall if the Fed’s inflation fight does indeed spur a recession.

Where are mortgage rates heading from here? To get some clues, Fortune once again tracked down mortgage rate forecasts from nine leading research firms (Fortune did a similar roundup for 2023 home price forecasts). Keep in mind that during an inflationary run it’s challenging to predict future mortgage rates.

Bank of America: Researchers at the investment bank expect mortgage rates to fall to 5.25% by the end of 2023. “Mortgage rates likely peaked in 2022, and the historically wide 30-year mortgage rates and 10-year Treasury yield spread between could narrow through 2023. Our structured products team expects the 30-year mortgage rate to decline to roughly 5.25% in 2023, as spreads normalize with lower Treasury volatility,” wrote BofA researchers in January. 

The Mortgage Bankers Association: The D.C.-based trade group projects that the 30-year fixed mortgage rate will slowly move down this year. The group thinks mortgage rates will average 6.4% in Q1 2023, 6.1% in Q2 2023, 5.7% in Q3 2023, and 5.3% in Q4 2023. Beyond this year, the group expects mortgage rates to end 2024 at 4.6%, and end 2025 at 4.4%.

Windermere Real Estate: The leading Seattle-based real estate company projects that the 30-year fixed mortgage rate will tick down throughout the year. The firm projects that mortgage rates will average 6.4% in Q1 2023, 6.1% in Q2 2023, 6.0% in Q3 2023, and 5.6% in Q4 2023.

Morgan Stanley: The Agency MBS strategists at Morgan Stanley believe that mortgage rates will fall to 6% by the end of 2023. (Here’s the investment bank’s home price outlook.)

Fannie Mae: Economists at Fannie Mae, which was chartered by the U.S. Congress in 1938 to provide affordable mortgage financing, project that the 30-year fixed mortgage rate will average 6.5% in 2023 and 5.9% in 2024.

Freddie Mac: Economists at Freddie Mac, which like Fannie Mae was also chartered to provide affordable mortgage financing, forecast that the 30-year fixed mortgage rate will average 6.4% in 2023.

Moody’s Analytics: The financial intelligence arm of Moody’s projects that the 30-year fixed mortgage rate will average 6.5% through most of 2023. (You can find Moody’s Analytics regional and national home price outlook here.)

Goldman Sachs: The investment bank projects that the 30-year fixed mortgage rate will end 2023 at 6.5%. “We expect 30-year fixed mortgage rates to rise to 6.5% by year-end, reflecting narrower mortgage spreads due to a rebounding MBS market—particularly for securitizations with explicit or implicit government guarantees—but higher Treasury yields. We also note that the rapid decline in mortgage origination, especially refinances, has caused some lenders to exit or scale back lending. This has the potential to allow the remaining lenders to expand their margins by pushing mortgage rates higher,” wrote Goldman Sachs researchers on Jan. 23. (You can find Goldman Sachs’ latest home price forecast here.)

Realtor.com: Economists at the home listing site believe the 30-year fixed mortgage rate will average 7.4% in 2023.

Want to stay updated on the housing market? Follow me on Twitter at @NewsLambert.