Will Mortgage Rates Go Up in 2015? Here are Predictions from Three of Today’s Top Mortgage Professionals.
Wouldn’t it be nice to know exactly where mortgage rates will go in 2015?
If rates were headed higher, you would start your home buying or refinancing process now. If rates were headed south, you’d probably wait.
While no one can say with certainty what 2015 holds for mortgage rates, we can look at interest rate trends and make a fairly good guess at what will happen. Here are predictions from a few of today’s top mortgage professionals.
2015 Interest Rate Prediction: Up, but When and How Much is Hard to Say.
There is one thing I can predict about 2015 mortgage rates with 100% accuracy. They will be different than those of 2014.
I know. That’s not very helpful. But it’s a good starting point for current and future homeowners when planning to take on a mortgage.
Rates are always changing, and small changes make a difference. For example, rates moved between 3.41% and 4.49% in 2013. When boiled down to real dollars, that’s a difference of $150 per month on a $250,000 mortgage.
Rates in 2014 were a little more stable, starting off at 4.53% in January and dropping to right around 4% in November. So what can we expect in 2015?
Like any financial advisor, we need to look at the past to see what it tells us about the future. Take a look at the Freddie Mac average rate by year:
Looking at this mortgage rate trend, a consumer might assume rates will stay in the 4% range. After all, that’s where they’ve been for some time.
However, we have to keep in mind that the last seven years have been an economic anomaly. What do I mean by that? We had the greatest run-up of housing prices in history from 2001 to 2008. Then we had a massive home price crash that took the economy with it.
Enter the government. Uncle Sam got involved to prevent a 1930s-style depression. The Federal Reserve pumped trillions of dollars into the system starting in late 2008. That kept rates low for a long time.
The Fed stopped this stimulus in October 2014. Why didn’t rates jump? Because the world is on shaky ground.
World Events Could Shape 2015 Rates
Russia is on Ukraine’s doorstep, ISIS seems unstoppable, and Europe is doubtful about its economic future. Investors practice safe-haven buying when the world is uncertain. Historically, nothing has been safer than US bonds. While returns are low, at least the investment is safe.
So while Uncle Sam pulled out, international investors jumped in. Mortgage rates barely moved as a result. So what does all this have to do with 2015 mortgage rates anyway?
Well, a lot. These international investors may not always have an appetite for low interest rate bonds like mortgage backed securities, to which U.S. mortgage rates are tied. If the world looks safer in 2015, money could flow out of US bonds into international ventures that would yield higher returns.
In other words, predicting rates is about as easy as predicting what ISIS or Russia or Iran will do in 2015 – a nearly impossible task for US intelligence agencies and mortgage rate shopper alike.
World conflicts don’t seem to be going anywhere. On one hand, a mortgage consumer is relatively safe waiting until the latter part of 2015 to lock. However, a couple things could happen. 1) A major situation resolves itself, or 2) Investors simply grow accustomed to the conflicts and see investment opportunities outside the US.
What Happens if Safe-Haven Buying Diminishes?
So where would rates go if international events calmed down a bit? To find out, we need to look at what a “normal” interest rate is. We need to go way back before the economic anomaly of the last few years and look at all the data we have.
Freddie Mac started its weekly interest rate survey in 1971. Can you guess the average 30-year fixed interest rate over this time period? Here it is: 8.48%
What? Eight and a half percent? Yep. More than double the level of current rates. If we employ the theory that the past reveals possibilities about the future, we would say it’s not a matter of if but when rates will rise. And the rise could be substantial.
An 8.5% rate seems other-worldly, and I know what you’re thinking. Rates were near 20% in the ‘80s which is skewing this number.
Ok, then let’s remove all rates between 1980 and 1985, when rates fluctuated between 12% and 18%. New Coke, Back to the Future, and early-80’s rates are erased from history.
What’s our average during the remaining 38 years? 7.55%
Still not very low, is it? The point of the history lesson is that rates have a lot of potential to go up, but not very much room to drop. The 30-year fixed rate is like an empty 2-liter bottle held just below the water’s surface. It just wants to float to the top. History is on the side of rising rates, especially compared to 2014 levels near 4%.
Do I think rates will rise to 7% or 8%. That’s not likely any time soon. However, rates in the 5-6% are a real possibility in 2015 and would be more in line with historical standards.
What’s my bottom line? If you can lock in a 30-year rate below 4.5% in 2015, do it. You’ll have a lower rate than most homeowners received over the past 40 years.
When the current interest rate party is over, it could be gone for good. You’ll be glad you replied yes to the invitation.
Tim Lucas is a licensed loan officer with over 12 years of experience as a loan originator, processor, and team manager. Get a live rate quote for your home purchase or refinance at MyMortgageInsider. Visit Tim on Google+, Twitter, and Facebook.
Mortgage Rate Forecast: Up But Not Too Much
Brad Yzermans, Loan Officer, Mountain West Financial, and mortgage blogger at HomeLoanArtist.com. NMLS 315238.
Let me start by stating that all mortgage rate predictions should be taken with caution (or a grain of salt) due to it being one of the more difficult economic variables to predict.
Case in point, probably 85% of all industry’s experts predicted mortgage rates would rise to the 5.0% range in 2014….obviously that didn’t happen.
I’m not a financial analyst, an investment banker, or an economist with a degree from an Ivy League school, however, my 10 years of real world loan origination experience tells me we are nearing the end of a historic opportunity to lock in long term mortgage money at extremely low interest rates.
I don’t see how it’s possible for mortgage interest rates to go down or even remain the same as current 2014 levels.
Unless something catastrophic happens or the government changes how they penalize borrowers for having a credit score under 740 with risk based pricing (level price adjustments), I see mortgages rates climbing moderately by about .25% to .375% in 2015, which will put rates in the 4.5% to 4.75% range.
Should Homebuyers or Homeowners Worry?
No, they shouldn’t worry, but they should be concerned because homeownership become less affordable as mortgage rates rise regardless if home prices level off or even go down!
With the government imposing their Qualified Mortgage Rule and Ability-to-Repay guidelines that reduce the maximum allowed DTI ratios, this means homebuyers will qualify for less. This will put downward pressure on home prices and home owners will see less benefit to refinancing.
However, just because mortgages rate are low now and likely to go up, I’m not suggesting they go out and buy at all costs before rates go up. People should buy when they are ready and it makes sense.
I do think homeowners who have FHA loans should refinance now to get rid of their FHA mortgage insurance premium.
My best advice for borrowers who want to make sure they lock in the lowest rate possible is to take the actions necessary to get their credit score up over 720.
Best of luck on your 2015 mortgage endeavors!
Improving Real Estate Market Could Signal Rising Rates in 2015
Luke Skar, MadisonMortgageGuys.com
As the year comes to a close many analysts and economists begin looking at various information to determine how things will change for the new year. While this is not an exact science, the experts have developed formulas to provide an overall picture of the upcoming financial events. Generally speaking, it seems that business will improve for the real estate industry in 2015.
An improving real estate market foreshadows a healthier economy. People don’t buy homes unless they have stable jobs and income. A strong, growing economy is great for people in general, but not so good for mortgage interest rates. Here are some real estate related indicators that could suggest an improving economy and therefore higher 2015 mortgage rates.
New Homes All Across the Land
The National Association of Home Builders recently had their webinar for forecasting construction numbers in the fall. During the webinar David Crowe, who is their chief economist, stated that he expects a 26% increase in the overall number of single family homes. Currently there are 637,000 under construction and his forecast puts the numbers at 802,000 by the end of 2015.
The primary economist from Moody’s Analytics, Mark Zandi, chimed in and felt that Crowe’s numbers were too low. Zandi is predicting the number of new homes under construction to reach 1,000,000 houses before 2015 comes to an end.
What is Driving the Optimistic Outlook?
In general terms, the growth in jobs is pushing the forecasts to such optimistic levels. Zandi stated that each month our economy is adding approximately 225,000 new jobs. That pace should greatly reduce the unemployment numbers and yield more people in search of a home.
It is a good rule of thumb that the United States is considered to be at a level of complete employment when the number of people out of work is only 4.5% of available workers. Based on the current projections of job growth it is possible that unemployment could be down to 5.5% when 2015 ends.
The number of current homes available for sale is slightly above 1 million properties, if looked at over a one year period. With the number of new jobs increasing steadily the necessary homes for sale will need to improve greatly.
New Homes and New Jobs lead to More New Mortgages
Based on the job growth figures and the pending home construction numbers most mortgage experts are predicting a large increase in applications for home purchases.
Overall, the number of new home loans should increase by approximately 15% for the year 2015, according to the Mortgage Bankers Association economist Michael Fratantoni. At the same time, Fratantoni feels that refinance loans will decrease by about 2% to 3%.
2015 Interest Rate Prediction
Trying to predict the exact change in the 30 year fixed mortgage rate is not always accurate but Fratantoni, along with many other experts in the industry, feels that rates will likely climb to 5% and possibly 5.5%.
Barring any major catastrophe it appears that the worst of the American recession is behind us and brighter days are ahead for the next year.