New Forecast: Mortgage Rates to Rise Slightly By End of 2015

The economic team at Freddie Mac recently issued a revised mortgage forecast through the end of this year. They anticipate the average rate for a 30-year fixed mortgage will rise to around 4.3% by December 2015. The 30-year average was hovering around 3.9% when this article was published.

We are nine days away from the next scheduled meeting of the Federal Open Market Committee (the Federal Reserve’s think tank), and many housing analysts are wondering if the Fed will finally raise short-term interest rates. If they do, we could see a subsequent rise in mortgage rates between now and the end of 2015.

In fact, some economists have previously predicted that mortgage rates will increase gradually between now and the end of 2015.

But there’s also a good chance the Fed will do nothing. We’ll know soon enough.

Next Federal Reserve Meeting: September 16 – 17

The Federal Reserve does not directly control mortgage rates. But they do control the short-term federal funds rate, which is used when banks lend money to one another. This has an indirect influence on longer-term interest rates, such as those applied to mortgage loans.

Federal Reserve policies and operations are decided during Federal Open Market Committee (FOMC) meetings. The FOMC meets eight times per year. Their next meeting is scheduled for September 16 – 17, 2015. Announcements and meeting minutes are typically published on the second day of the meeting.

For a while, the general consensus was that Fed officials would announce a rate hike during their September meeting. But now, analysts aren’t so sure. Recent turmoil in the stock market and global economy might cause the FOMC to continue along its current course, which would mean keeping the federal funds rate near zero. If they do maintain the status quo, mortgage rates would be less likely to rise significantly during the last quarter of 2015.

Mortgage rate forecasts for 2015 usually take all of this into account. For instance, in its latest forecast and outlook for the U.S. housing market, mortgage buyer Freddie Mac stated the following:

“Six-plus years into what has been a very tepid expansion, is it finally time for the Fed to raise short-term interest rates? The Fed has stated it is waiting for evidence that labor markets have recovered and inflation is reliably expected to be at or above 2 percent before it will take action.”

While the job market has improved since the start of 2015, inflation is still below 2% and could actually drop further according to some estimates. So there’s a good chance the FOMC will decide against any policy changes and continue along it charted course for now (with the funds rate near zero).

At a recent news conference, New York Federal Reserve president William C. Dudley said: “From my perspective, at this moment, the decision to begin the normalization process at the September F.O.M.C. meeting seems less compelling to me than it was a few weeks ago.” (Full story at New York Times)

Revised Mortgage Rate Forecast by Freddie Mac

The Chief Economist’s Office at Freddie Mac has taken all of these factors into account, and recently issued a revised forecast for mortgage rates. Their housing outlook report for August called for a slight increase in rates through the end of 2015.

They’ve actually revised their forecast downward in recent months. This time last year, Freddie Mac estimated that the average rate for a 30-year mortgage would approach 5% by the end of 2015. But it’s highly unlikely that will happen, given that the 30-year average is currently hovering below 4%.

Now, the company has issued a revised mortgage rate forecast with a lower year-end estimate. Based on current trends, they expect 30-year mortgage rates to rise slightly to around 4.3% by December 2015.