Predictions: Will Mortgage Rates Go Up or Down By Year’s End?
If we were to rank the most common questions sent in by our readers, one question would reign supreme: What will mortgage rates do over the coming weeks? Will mortgage rates go up or down between now and the end of the year?
Personally, if I had that kind of prognosticating prowess, I would be hanging out on Wall Street. No one can predict what interest rates will do over the next few weeks or months. But we can examine the market forces and trends that have influenced rates in the past, and make an educated guess or prediction about what they might do in the future. So let’s go that route.
Will Mortgage Rates Go Up or Down?
What can we expect from the lending industry over the next few months? Will mortgage rates go up or down between now and the end of the year? Let me start by saying this: If I was in the market to buy a home, I would make my move as soon as possible. Presently, there are several overlapping trends and conditions that signal a rise in borrowing costs over the coming weeks. Will mortgage rates go down by year’s end? Don’t hold your breath.
Currently, most mortgage predictions call for rising rates between now and the end of the year, and also into 2014. These include predictions and forecasts made by Freddie Mac’s economists as well as the Mortgage Bankers Association (MBA).
Much of this will hinge on the Federal Reserve, and whether or not they decide to make stimulus cuts. For months, the Fed has been purchasing massive amounts of Treasury bonds and mortgage-backed securities (MBS) in an attempt to increase lending while decreasing borrowing costs. This has put downward pressure on mortgage rates and is the primary reason we saw record-low rates at the end of 2012.
Though they’ve yet to make an official decision in the matter, the Fed is expected to begin tapering their bond-buying program later this year.
What will mortgage rates do between now and the end of the year? It largely depends on what the Fed decides to do. The outcome of their next Federal Open Market Committee (FOMC) meeting, scheduled for September 17 – 18, will have a big influence on whether mortgage rates go up or down in the weeks following that meeting.
FOMC Members ‘Comfortable’ With Tapering
The minutes from the last FOMC meeting, which took place at the end of July, showed that it’s not a question of if the Fed will taper its stimulus program — but when. According to those minutes, which were released on August 21: “Almost all participants confirmed that they were broadly comfortable [with the committee reducing] the pace of its securities purchases later this year.”
If Fed officials come out in favor of tapering at their September committee meeting, mortgage rates will likely go up gradually between September and December of this year. If the Fed decides to maintain the status quo, we could see continued ups and downs in the benchmark rate, with a more modest upward trend. There is much uncertainty at this point.
Fed officials and economists are currently meeting in Jackson Hole, Wyoming, where it seems the stimulus program is catching some flack.
Benchmark 30-Year Rate Jumps 18 Basis Points in a Week
Two days ago, Freddie Mac published the latest results of their weekly survey of the mortgage market. The survey, which has been running continuously since 1971, is one of the best indicators of mortgage trends in the U.S. Of course, it doesn’t tell us what rates will do going forward. But it does help us measure the effect of recent trends within the market.
Here are the latest trends from that survey:
- On August 22, the average rate for a 30-year fixed-rate mortgage (FRM) jumped 18 basis points from the previous week’s average of 4.40%, landing at 4.58% for the week. That’s the highest the benchmark rate has been in more than a year.
- The 15-year FRM average rose from 3.44% to 3.60%, also reaching its highest point in over a year.
- The 5-year ARM average actually dipped slightly on Thursday, falling from 3.23% to 3.21%.
- The 1-year ARM average was unchanged at 2.67%.
Bear in mind these are just average mortgage rates that include points paid at closing. The actual rate assigned to a home loan will vary based on a several factors, including the borrower’s credit score and debt ratio, the size of the down payment, and the type of loan being used.
Will mortgage rates go up or down next week, when the next Freddie Mac survey comes out? To answer that question, we can look to the Treasury. Short-term mortgage predictions can be made (with a reasonable amount of accuracy) by watching Treasury bond yields. The 10-year Treasury yield, in particular, is a pretty good indicator of what lending rates will do from one week to the next, in terms of up or down movement.
The 10-year yield fell by one basis point this week, but is still sitting near a two-year high. Here’s what Christopher Sullivan, chief investment officer at United Nations Federal Credit Union in New York, recently told Bloomberg:
“The Fed seems more disposed to tapering than the market originally thought, and the economy is getting better, which means higher yield for now.”
Prediction: These are other factors lead us to believe that mortgage rates will go up between now and the end of the year. And now for a big, fat disclaimer.
Disclaimer: This article attempts to answer the question, What will mortgage rates do over the coming weeks and months? This article is the equivalent of an educated guess. The views and predictions stated above are the sole opinion of the author and should not be viewed as actionable financial advice. We make no claims or guarantees about the future of lending rates or other economic conditions.