Los Angeles Mortgage Rate Trends in 2015: Below 4%, but for How Long?

Summary: Los Angeles mortgage rates are currently averaging 3.63% in the 30-year loan category. Many analysts expect long-term interest rates to rise later in 2015, due to economic gains and actions taken by the Federal Reserve.

Conventional wisdom says the best time to buy a house is when mortgage rates are low and home prices are stable and/or rising. If that’s true, now might be a good time to buy a home in the Los Angeles metro area.

Mortgage rates in Los Angeles have been hovering near historic lows for some time now. Some housing analysts expect them to remain low for the foreseeable future, while others are predicting a gradual rise throughout 2015. In the words of one analyst, it will be a “volatile year.”

Here are the latest mortgage rate trends for the Los Angeles area, as well as a broader market outlook and forecast.

Los Angeles Mortgage Rates Drop at the Start of 2015

Let’s start with a look at current home loan rates for Los Angeles, California. According to Freddie Mac, the average rate for a 30-year fixed mortgage dropped to 3.63% for the week ending on January 23, 2015. That’s a decline of 20 basis points (0.20%) from the previous month’s average, and a decline of 90 basis points (0.90%) from January of last year.

It bears repeating: Los Angeles mortgage rates are nearly a full percentage point lower today, at the start of 2015, than the same time last year. This flies in the face of previous predictions, most of which called for gradually rising loan rates in 2014. So much for the crystal ball.

It’s worth noting that most experts, including Freddie Mac’s chief economist, have predicted gradually rising rates for 2015 as well. But they missed it last year, and they could be wrong again this year. Long-term mortgage rates are notoriously difficult to predict. So you shouldn’t “bank” on any of these forecasts.

If rates do start rising steadily in the near future, it will probably happen when the Federal Reserve raises the federal funds rate (used for inter-bank lending). They’ve kept it near 0% for several years now, as an economic stimulus measure. But in their most recent policy meeting, Fed officials stated they could raise the federal funds benchmark sometime this year, possibly during the second quarter.

Los Angeles mortgage rates will likely begin to rise when that occurs. But how quickly they rise, and by how much, is something we cannot predict.

Here’s what Los Angeles home buyers and homeowners should take away from all of this. Home loan rates are currently very low, as of January 2015. In fact, they are very close to the all-time historic low that occurred in November 2012 (when the 30-year average fell to 3.31%). So it’s a pretty good time to shop for a mortgage loan. Most economists expect these conditions to continue for at least the next couple of months. But again, you can’t bank out the forecasts.

Note: Los Angeles mortgage rate trends and averages are useful when comparison shopping. But you also have to realize that interest charges vary based on a variety of factors. For instance, borrowers with excellent credit scores typically secure lower mortgage rates. Borrowers with bad credit are typically charged higher interest. The type of loan you choose will also play a role, as well as the size of your down payment.

Home Prices Have Cooled Across the L.A. Area

Home prices are the other piece of this puzzle. Mortgage rates are obviously important to most Los Angeles home buyers, but house prices are also a big concern. So what should buyers expect in 2015? Additional gains, most likely, but nothing like what we saw over the last few years.

Home prices in Los Angeles rose rapidly between 2012 and 2014, at a time when mortgage rates were much more stable. In July 2013, for example, the L.A. metro area had the largest annual price gain out of the 100 largest metro areas in the U.S. (according to real estate data firm CoreLogic). From July 2012 to July 2013, home prices in the L.A. metro area rose by a staggering 22.62%.

But the market has cooled considerably since then, and this cooling trend will likely continue in 2015.

According to Zillow’s “Zestimate” pricing formula, home prices in the Los Angeles area rose by nearly 8% in 2014. But they are only forecasting a more modest gain of 2.6% through the end of 2015.

But this is a story about Los Angeles mortgage rate trends for 2015. So let’s end on an appropriate note.

Home loan rates have declined in recent weeks, and we could certainly see additional drops in the near future. But the general consensus is that the downward trend won’t last much longer — at least not through the end of 2015. Analysts are predicting quite the opposite.

Greg McBride, chief financial analyst for Bankrate.com, expects a series of rate hikes in the year ahead. “This is going to be a very volatile year,” he said.

But home buyers don’t necessarily need to rush. If Los Angeles mortgage rates do begin to rise later this year, as expected, it probably won’t happen with great velocity. The most “dramatic” projections I’ve seen are only predicting a year-over-year rise of around 1 percentage point. And now for the big fat disclaimer…

Disclaimer: This story contains forward-looking statements (forecasts, predictions) regarding mortgage rates for the Los Angeles area and related housing trends. Such statements should be viewed as an educated guess, not as fact. We make no claims or guarantees about future economic conditions.