30-Year Mortgage Rates Could Average 4.6% Next Year, Says Economist

A prominent U.S. economist issued a prediction for average mortgage rates today. Frank Nothaft, chief economist for mortgage-buying giant Freddie Mac, recently stated that 30-year mortgage rates could average 4.6% next year. He also said the average rate will likely be higher at the end of 2015 than at the beginning, perhaps reaching 5.0% by year’s end. This was one of several predictions offered as part of the company’s monthly housing outlook.

Here’s a video that summarizes the latest report:

Additional forecasts for next year:

  • The 10-year Treasury yield is expected to average 2.9 percentage points next year, up from 2.6 this year. Long-term mortgage rates tend to increase along with the 10-year Treasury yield. That is why Mr. Nothaft and company have predicted higher interest rates on home loans next year.
  • Freddie Mac’s economic team also expects to see a continued slow-down in annual home-price increases. In 2013, U.S. home prices rose by 9.3%. In 2014, the annual gain fell to 4.5%. Next year, prices are expected to rise by around 3.0% — a slower pace than what we have seen in recent months.
  • Housing affordability will decline in 2015, as a result of rising mortgage rates and home price appreciation. But the bigger picture is that housing is still very affordable. According to Freddie Mac’s recent news release: “Historically speaking [we are] moving from very high levels of affordability to high levels of affordability.”
  • We could see a significant increase in the number of new homes being built next year. Housing starts are expected to climb by 20% from 2014 to 2015, partly the result of a strengthening economy and job gains.
  • Home sales are also likely to rise next year. According to the housing report, the total number of home sales (including both new and existing homes) could rise 5% next year to reach its highest level in eight years. That would mark the best sales pace since before the housing crisis, another sign of the ongoing recovery.
  • Overall, mortgage loan originations are expected to fall next year. Freddie Mac’s economists anticipate a rise in purchase loan originations (i.e., home buyers), but it will not be enough to offset the expected decline in refinance originations. So total loan volume will likely fall next year.

With the predicted rise of home prices and average mortgage rates, it seems the best deals for home buyers might be in the rear-view mirror. Granted, these are national averages and trends we are talking about. Conditions vary widely at the local level. Home prices could hold steady, or even decline, in some U.S. cities next year. That’s why we encourage home buyers to conduct plenty of local research before purchasing a home.

Good Credit, Points Needed to Get the Best Rates

This story focuses on average mortgage rates, which is the average interest cost assigned to home loans at a particular period of time. Actual rates, on the other hand, tend to vary from one borrower to the next. This is largely the result of differences in credit scores, down payment size, points paid at closing, and the type of loan being used.

In order to qualify for the best rates available, borrowers must have excellent credit and will likely have to pay points as well. A discount point is a form of prepaid interest — you pay a certain amount at closing in order to secure a lower interest rate over the long term. The discount-point strategy is best suited for long-term housing scenarios, as opposed to a short stay of only a few years (learn more). Bear this in mind when shopping for a home loan, and when researching average mortgage rates.

Disclaimer: This story contains forward-looking statements relating to the mortgage industry. Such statements are the views of the authors / speakers and do not necessarily reflect the views of the publisher. This article includes third-party data that is deemed reliable but not guaranteed. We make no claims or assertions about future interest rate averages or other economic conditions.