Forecast: Mortgage Rates Could Drop Even Lower Toward 2021, Say Experts

Key highlights from this report:

  • Recent mortgage rate forecasts suggest that rates will remain low.
  • Those predictions came from economists at Freddie Mac and Fannie Mae.
  • One forecast predicted that rates could drop lower in 2021 than they are now.
  • They’re currently hovering in the 3.3% range, for a 30-year loan.
  • Such forecasts are the equivalent of an educated guess and far from certain.

Mortgage rates are currently hovering near historic lows. So mortgage shoppers should rush to take advantage of that, before rates rise again. Right?

Not so fast.

As it turns out, many experts are now predicting that today’s low mortgage rates could last for quite some time. And one recent mortgage rate forecast predicted they could drop even lower as we approach 2021.

Of course, those are just forecasts. They’re the equivalent of an educated guess. A lot could change over the coming weeks and months to disrupt those predictions. But the general consensus seems to be that low rates are here to stay for a while.

The takeaway is that mortgage shoppers probably don’t need to rush. Based on current forecasts and projections from leading experts, it seems that low mortgage rates are here to stay. At least for a while.

Mortgage Rate Trends to Date

The economic slowdown in the U.S., combined with stimulus actions taken by the Federal Reserve, have caused mortgage rates to drop in recent weeks.

The chart below shows the average rate for a 30-year fixed mortgage loan between May 2017 and April 2020. It’s based on the weekly industry survey conducted by Freddie Mac, the government-sponsored corporation that buys loans from lenders.

Rates over last 3 years
Chart: Average 30-year mortgage rates. | Source: Freddie Mac PMMS.

As you can see, rates peaked near 5% toward the end of 2018. They then dropped considerably going into 2019. Rates are currently hovering near their lowest point in history (to date). That average fell to 3.29% in March of this year and was hovering at 3.3% when this article was published.

Related: A housing recovery later this year?

A Favorable Forecast Into 2021

The big question is, how long will this favorable trend last? What’s the long-range outlook for mortgage rates in the U.S.?

That’s a tough question to answer, especially with all of the economic uncertainty we’ve been going through lately. But there does appear to be some good news on this front, from a mortgage shopper’s standpoint.

Researchers from two industry giants — Fannie Mae and Freddie Mac — recently issued similar forecasts suggesting that home loan rates could hover within their current low range for the foreseeable future. So there appears to be some consensus on that front.

Here’s a summary of those recent forecasts, extending into 2021:

  • Freddie: On April 6, analysts from Freddie Mac predicted that 30-year mortgage rates would end up averaging 3.2% during the last two quarters of 2020. Projecting further out, they predicted a slight drop in home loan rates going into 2021.
  • Fannie: Also in April, economists from Fannie Mae made a similar prediction for mortgage rates stretching into 2021. Their forecast predicts the average rate for a 30-year home loan could drop toward 3% by the end of 2020, and hover within that range going into 2021.

In an April 13 press release, Freddie Mac’s chief economist Sam Khater stated: “The average 30-year fixed-rate mortgage is expected to be 3.3 percent in 2020 and 3.1 percent in 2021.”

Fannie Mae’s research team predicted that 30-year fixed home loan rates could end up averaging 2.9% during the latter part of 2021. That would be unprecedented. Never before have they sunk that low.

Note: When this story was published on April 27, the average rate for a 30-year fixed mortgage loan was 3.3% according to Freddie Mac. This means the analysts don’t expect to see any significant increase over the coming months. And that’s good news for anyone in the market for a home loan.

Federal Reserve Takes Stimulus Measures

These 2020 – 2021 mortgage rate forecasts are partly the result of actions taken by the Federal Reserve. While the central bank does not control home loan interest rates directly, their policies do have an indirect influence on borrowing costs.

The short version is that Fed officials have signaled they will keep the federal funds rate near zero for a while, as an economic stimulus measure. And that could keep mortgage rates low throughout much of 2020 and possibly into 2021.

After its March 2020 meeting, the Federal Reserve’s policymaking committee wrote the following:

“The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

Source: Federal Reserve press release, March 15, 2020

Translation: We can probably expect mortgage interest rates to remain low for the foreseeable future. Because it will be a long time before the U.S. economy is “on track to achieve its maximum employment” again. From an economic standpoint, the worst is yet to come. So the Fed probably won’t be increasing the federal funds rate anytime soon.

Message to Borrowers: Don’t Sweat the Mortgage Rates

Based on these projections, home buyers and homeowners in the market for a loan probably don’t have to worry about a sharp rise in borrowing costs. Not anytime soon, at least. The latest mortgage rates forecasts for 2020 – 2021 predict a continuation of the status quo.

That’s good news for home buyers who are considering a purchase, and also for homeowners who want to refinance their existing loans. Both groups stand to benefit from the current low-rate environment.

Home buyers should pay closer attention to (A) the prospect of continued income and (B) the long-term outlook for home prices. Those are more important factors than interest rates, given the current economic climate.

Disclaimer: This report contains mortgage rate forecasts / predictions extending into 2021. Such outlooks were provided by third parties not associated with the publisher and are the equivalent of an educated guess.