Mortgage Predictions: Just how low can mortgage rates go and for How Long?

All through 2020, mortgage rates remained low, setting new record lows in December and January of less than 3 percent. Since then, the mortgage rates have climbed setting a new trajectory for this year. However, the direction that trajectory will shift towards largely depends on inflation. One thing that is for sure, most experts agree that the rates will not remain at rock bottom, and might rise significantly to as high as 3.5% or even 4.25% before the year ends.

The good news is that today, the mortgage rates are still low, which means that homebuyers can take advantage of this opportunity to buy now and lock in a great deal!

IT’S NOT TOO LATE!

As the economy begins to reopen, one thing is certain, that mortgage rates and refinance rates will begin to rise. That doesn’t however mean that one day we’ll wake up to find the rates sky-high. It is a gradual process. For instance, so far, the mortgage market has been marked by a gradual rise and fall of the mortgage rates to what we have now. That means that for those looking to buy their homes this year, there is still a pretty good chance to lock in exceptionally low rates. And while no one can predict with true certainty about the future of the mortgage rates, the general consensus is that there is a big likelihood that the mortgage rates might rise in 2021.

MORTGAGE RATE PREDICTIONS FOR 2021

Data from Freddie Mac shows that since the beginning of the year, the average 30-year fixed mortgage rate increased roughly 0.4 percent, and every sign points to the rate actually rising higher as we progress with the year. “Our long-term view for mortgage rates in 2021 is higher,” says Realtor.com chief economist Danielle Hale. “As the economic outlook strengthens, thanks to progress against coronavirus and vaccines plus a dose of stimulus from the government, this pushes up expectations for economic growth and inflation, driving long-term bond rates higher.”

One of the key goals and a positive sign of a strong economic recovery is getting people back on track to work faster. To achieve this fast, the government has to speed up the vaccination process “Mortgage rates should rise as we are in the early stages of getting our economy working again,” says Logan Mohtashami, housing data analyst at HousingWire.

However, the mortgage rates could remain relatively low if there is any unexpected bad news especially concerning the Covid-19 or even the vaccine distribution. Therefore, if the process of vaccination goes smoothly and there is a speedy recovery, we should expect the mortgage rates to start climbing.

One thing we have to keep in mind is that longterm Treasury bond rates are a key indicator of the mortgage rates. Last year the 10 year Treasury yield bottomed in August. Since March 2021, the yield hovered between 1.5% and 1.7%. “Mortgage rates have been coming back down while bond yields have been rising since they were never properly priced during this crisis. However, we are getting close to a traditional relationship with bonds and mortgage rates,” added Logan. This can only mean one thing, the more the yield from long-term bond yields rises, the more the mortgage rates will rise higher.

In addition, whatever happens to the stock market going forward has a big impact on the mortgage rates. “We haven’t had a 10% plus correction [in the stock market] since March of 2020,” Mohtashami says. “[A drop in the stock market] will provide a rally in bonds, but should only be short term.”

We mentioned something about inflation which will largely influence the direction mortgage rates to take going into the future. According to Greg McBride, CFA, Bankrate chief financial analyst, the covid-19 vaccines have brought new optimism to the US economy.

“The tug of war over whether mortgage rates will move higher or lower from here largely revolves around inflation,” McBride says. “If inflation does indeed prove temporary, any increases in mortgage rates will be limited. So far the evidence suggests only a temporary spike in inflation. This should keep rates in the low 3’s in the coming months. But if the Fed is deemed behind the curve and the inflation genie gets out of the bottle, that’s a whole different story.”

WHAT’S THE TREND? A RISE…?

There have been small increases in the mortgage rate since the beginning of the year and all indicators point to the rate rising. Early in the year, the rate spiked to 3.18 percent and then fell back to under 3%. This means that if you are looking to refinance, there is a good chance that you will secure a good rate. But there are some experts who argue that the refinancing boom of 2020 will slow down dramatically by the second half of 2021. “We think refi volume is going to fall off pretty sharply, particularly in the second half of 2021 as the economy really finds its footing,” says Michael Fratantoni, chief economist at the Mortgage Bankers Association.

Nonetheless, what the FED does going forward will have a significant impact on the mortgage rates and while it doesnt set the mortgage rates, the central bank sets the overall ate environment. When the pandemic began, the FED slashed the federal funds rate and signaled an intent to keep the rates down for a while; this means little to no upward pressure on the mortgage rates.

“I think the Fed is going to keep their foot on the gas, keeping short-term rates at essentially zero through 2022, and only very slowly begin to raise rates in 2023,” Fratantoni says.

WHAT DO HOUSING AUTHORITIES SAY ABOUT MORTGAGE RATES

Many housing authorities agree that the mortgage rates will hold in the low to mid 3 percent throughout the rest of the year, not unless there are unexpected events disrupting the economy. According to major housing authorities - Fannie Mae, Freddie Mac, and the National Association of Realtors the average 30-year mortgage rate could fall between 3.0% and 3.30% by the end of summer. Here’s a summary of their predictions.

Housing Authority 30-Yr Mortgage Rate Prediction (Q3 2021)

Fannie Mae 3.00%

National Assoc. of Home Builders 3.13%

National Association of Realtors Mortgage Bankers Association Freddie Mac 3.20%

3.20%

3.30%

Wells Fargo Average Prediction 3.30%

3.19%

Sources

https://time.com/nextadvisor/mortgages/mortgage-predictions-2021/ http://www.freddiemac.com/pmms/archive.html https://time.com/nextadvisor/mortgages/monthly-mortgage-forecast-andpredictions/ https://themortgagereports.com/76960/mortgage-rate-predictions-late-2021 https://www.bankrate.com/mortgages/mortgage-rate-forecast/