Why aren’t they rising? Are they the new normal?
Provided by Christian H. DePaul, CFP
In November 2012, the interest rate on a 30-year home loan averaged just 3.31%. That was an all-time low. Simultaneously, the 15-year fixed-rate mortgage averaged just 2.63% interest and the rate on the adjustable 5/1-year loan fell to 2.74%.1,2
Nearly four years after Freddie Mac reported those numbers, mortgage rates are back near those levels. The 30-year FRM has averaged less than 4% interest all year, declining from a high of 3.97% in Freddie’s January 7 Primary Mortgage Market Survey down to the vicinity of 3.5%, in its September 15 PMMS findings.3
Are ultra-low mortgage rates here to stay? They could be. When the Federal Reserve raised the benchmark interest rate in December 2015, analysts thought mortgages would gradually become more expensive. That hasn’t happened. An overseas economic development helped to keep them in check. After voters in the United Kingdom approved the Brexit in June, U.S. investors raced to buy Treasuries. Their yields hit record lows as prices jumped, thanks to demand.4
While the yield on the 10-year Treasury quickly rebounded, the Brexit caused Freddie Mac’s analysts to revise their view of where rates were headed. In July, they forecast that rates on conventional home loans would stay at 3.6% or lower for the rest of 2016, and average around 4% in 2017. Kiplinger analysts predict that the average interest rate on the 30-year FRM will be no higher than 3.7% at the end of 2017.4,5
Mortgage rates tend to move in relation to expectations about Federal Reserve policy. You may see rates move north appreciably when the Fed hikes, but they could fall again thereafter. In fact, that was exactly what happened in the first half of 2016.6
The Fed’s dot-plot forecast of near-term interest rates posits that the federal funds rate will be under 5% for the balance of this decade. With the central bank setting those kinds of expectations, there is an excellent chance that you may see relatively low mortgage rates for the next few years. (Historically, interest rates on conventional mortgages have averaged around 8%.)6,7
Christian may be reached at (434) 385-1340 or email@example.com.
Christian H. DePaul is a Registered Representative offering securities through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. DePaul Wealth Management and Cadaret, Grant are separate entities.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 – realtormag.realtor.org/daily-news/2016/07/15/mortgage-rates-stay-near-record-low [7/15/16]
2 – freddiemac.com/pmms/archive.html?year=2012 [9/19/16]
3 – freddiemac.com/pmms/archive.html?year=2016 [9/12/16]
4 – washingtonpost.com/news/where-we-live/wp/2016/07/14/mortgage-rates-remain-low-and-look-to-stay-that-way-for-a-while/ [7/14/16]
5 – kiplinger.com/article/business/T019-C000-S010-interest-rate-forecast.html [9/16/16]
6 – cnbc.com/2016/09/12/mortgage-rates-finally-break-higher-what-you-should-watch.html [9/12/16]
7 – businessinsider.com/fed-dot-plot-june-2016-2016-6 [6/15/16]