In 2014, mortgage rates were¬†on steady decline. 30-year mortgage rates began the year near 4.50%, according to Freddie Mac's weekly mortgage rate survey; and are ending the year near 3.75 percent -- an improvement of 75 basis points (0.75%).
2014's¬†big interest rate drop marks the second-best annual improvement since 2003, next to only 2011. Different from that year, though, is that 2014 mortgage rates weren't expected to fall.
Last year, mortgage rates had run higher to close the year. The Federal Reserve was ending its explicit support for low mortgage rates; and the U.S. economy was showing signs of a rebound.
However, as Fed support waned, demand for mortgage-backed bonds unexpectedly grew. Global investors sought safety in the U.S. markets as emerging markets faltered; geopolitical tensions heightened; and, the U.S. dollar strengthened -- three factors which contributed to lower mortgage rates overall.
30-year rates are lower by three-quarters of a percent as compared to the January; and 15-year rates are lower by close to 0.50 percentage points.
It's been an excellent year to refinance a home or buy one, but rates may not stay low much longer.
Wall Street is predicting 2015 mortgage rates to move higher and 96% of consumers believe mortgage rates have bottomed. But, what do experts in the field believe?
Below, you'll find 11 2015 mortgage rate predictions from a combination of loan officers, REALTORS¬ģ, and mortgage market experts. Use their forecasts to your advantage.
And, for when you're looking for a weekly mortgage rate prediction, be sure to visit and play The Mortgage Rate Game. New games start weekly.
2015 mortgage rates, uninterrupted, will move lower throughout the year, ending 2015 below 3.80%, on average.
There are several reasons to expect lower interest rates.
The first reason why mortgage rates will drop in 2015 is that there's continued economic weakness abroad. The economies of China, Japan, Russia have been lackluster, at best; and the Eurozone has failed to show meaningful growth. An uncertain 2015 will drive investment dollars toward the U.S., benefitting the broader mortgage-backed securities (MBS) market.
As MBS prices improve, mortgage rates will drop.
A second reason to expect lower mortgage rates is that the Federal Housing¬†Finance Agency (FHFA) will likely reduce its loan-level risk fees, which have raise consumer mortgage rates by as much as 25 basis points (0.25%). Without these loan-level costs, mortgage rates will fall naturally, giving U.S. consumers access to lower rates.
And, third, mortgage rates can be expected to drop as more U.S. lenders transition¬†to paperless transactions. E-signatures and image-capture technologies shorten the time required to process and close a loan; and when loans can close faster, banks can reduce their rates.
We've already seen a net improvement in loan processing time nationwide. This trend will continue into 2015.
So long as the above stays true, mortgage rates could end the year near 3 percent with equally low APRs. However, a "shock to the system" in the form of an unexpected change in Federal Reserve policy or rapid improvement in an overseas economy could result in mortgage rates rising.
I'm preparing my buyer clients for a *slight* rise in mortgage rates in 2015, but I don't anticipate we'll see a drastic change in rates - perhaps to 5-5.25%.
We've typically seen rates climb when the economy as a whole is doing very well, so while we're seeing the economy growing a little bit there are still areas of weakness, I'm expecting that to put some downward pressure on rates as we head into 2015.
If the economy were going gangbusters, with low unemployment rates and solid growth in most sectors, it would be a different story - but the reality is that we've been hearing about "rising interest rates" for the last few years, and it just hasn't happened - they've stayed relatively stable.
Rates should remain unchanged. Not because of lack of qualified borrowers but because of the process of getting a loan done in 30 days is still difficult. As long as, it takes 45-60 days to get a deal done, it's going to be hard to create a surge and justify raising interest rates.
The process is being made difficult by some lenders who are having a tough time implementing/understanding "Dodd-Frank" . It appears that in trying to implement the new rules, some lenders are confusing "due diligence" with "unrealistic" and "consistent" with "unreasonable". That confusion leads to unhealthy and unnecessary delays in the loan process. Understanding the rules will speed up the process and allow borrowers to take advantage of "still" historic lower rates.
Rates will remain unchanged because lenders are not ready, and prepared for a surge...creating a false sense of a distrust between the "banks-lenders" and the "consumers".
Pressure for rates to rise will exist through out the upcoming year. But this will be offset by a combination of factors.
Ongoing global weakness US and mortgage backed securities are a default safe harbor, there is plenty of weakness in Europe and China to keep dollars in the US. Congressional gridlock will work on the domestic markets as consumer confidence stays restrained. Generally we will maintain the existing trajectory of slow reduction in unemployment but a maintaining of or increase in under employment--most people¬†are looking deeper into the numbers at this point.
Low inflation, with no or minimal rate increases in the near future there will be little pressure here other than the uncertainty of what comes next. Last but not least overall loan volume will not increase significantly. This ongoing minimal increase in demand for mortgage backed securities (MBS)will further contribute to keeping rates moderate.
I'd expect rates to stay within .25% up or down as we move through the year with higher rates during the summer months.
Although the overall trend is expected to be an upward one for the year as a whole, periods of volatility could see rates drop, especially in the early part of the year, and likely driven by forces outside of the U.S.
Absent any significant new global issues, we expect all mortgage rates to be mostly firmer in 2015, especially later in the year. There are a number of reasons to expect this to occur:
From late 2014 levels, we might see a maximum peak for rates over the course of the year of maybe 4.75 percent for conforming 30-year FRMs; this would be comparable with peak 2014 levels. Depending on how aggressive (or not) the Fed begins to move short-term rates as the year progresses, ARMs may or may not move as much, but common 5/1 ARMs might see a peak of 3.5 percent or so.
In 2015, my expectations are that rates will rise slightly, but not take a significant jump.
Fixed rates might go as high as 5.00% for a 30 year conventional mortgage but I expect that rates will be traded in a range between 4% and 5% for most of 2015.
Some of the things that will impact rates rising slightly include a strengthening economy, a falling unemployment rate and a bias from the Fed to do what they can to allow rates to rise ... slightly.
That said - 5% for a fixed rate, 30 year mortgage is still historically low. Even if rates do rise to the 5% range, it is still below the approximately 8% average that rates have historically averaged since the early 1970's and still lower than even the 6% that rates averaged for the years before the recent mortgage meltdown.
Will rates rise? Probably.
Does that mean that rates are going to be "high" in 2015? Not really.
I believe that mortgage rates will remain relatively stable through the first quarter of 2015, and then slowly rise through the second and third quarters before plateauing in the fourth.
Sometime in that first quarter, I think the Fed will begin changing the forward guidance language pertaining to monetary policy. Recent communications from various Fed members indicate that they wish to avoid a repeat of the ‚ÄúTaper Tantrum‚ÄĚ of 2013, and I expect the Fed to communicate in advance that a rate hike is coming. In all likelihood, a rate hike will be baked into bond prices prior to a hike occurring.
However, the prospect and timing of a rate hike depends on several assumptions: that the U.S. economy continues to expand, that wage inflation begins to occur in earnest, that below-expectation inflation is temporary, and that global economic woes do not carry-over to the United States.
I also think that the Fed will very gingerly begin to lift rates from the zero lower bound. It will probably take some time for rates to normalize, perhaps years, and we will likely see a series of small (0.25% or so) rate hikes over a period of time.
In his December 1, 2014 speech, NY Fed President William Dudley was clear that the Fed will be closely monitoring market reactions when monetary policy tightens, and that they will act with according cautiousness or aggressiveness. As Fed President Janet Yellen has emphasized, policy changes will be dependent upon the data, not the calendar.
In summary, I expect to see moderately higher rates in 2015 as the economy continues to improve and the Fed moves to tighten policy.
Mortgage rates involve a self-fulfilling prophecy: they cannot rise beyond the ability of new buyers to pay them. Any increase beyond that mark and housing quickly stops, followed by the economy itself.
The exact altitude of show-stopping cannot be known, but we can estimate by two means: historic and current conditions. Historically a two-percentage-point rise from the low of any recession has stopped the show: in this case, from the 3.50% bottom in 2013, 5.50% would do it.
However, this is the weakest housing recovery after any recession since the Depression.
I think 5.00% would stop what little recovery we have, thus an "unchanged" forecast, wandering in the fours next year as we have in 2014.
The Fed will tighten next year, if only to reduce the bubble potential of all the easing it has done. However, it is quite possible that the Fed could take the overnight cost of money (the "Fed funds" rate) from the 0%-.25% where it has been since late 2008 up to 1.00%, perhaps even 1.50% and not drive up mortgage rates. Markets understand the self-fulfilling prophecy, as does the Fed: the higher the Fed goes, the more likely an economic slowdown.
Several primary dealers have forecast that any significant tightening by the Fed would result in a return to zero within a year.
The market has potential in 2015 to revisit the historic low water mark previously set in 2013.
As the months roll off the calendar, Federal Reserve forecasts continue to defer the expected timing of policy changes, and data continues to reflect a domestic economy that is struggling to create meaningful lift-off. The global economy is peppered with economic hotspots that could still lead to contagion or panic-related pressures, and geopolitical risk shows no sign of becoming less relevant.
Without a clear shift in the trend of economic data, which could take months or quarters to take shape, it seems unrealistic that we end 2015 with rates significantly different from where they close 2014.
My humble opinion is rates will move higher in 2015.
The year will start off low, but mortgage rates will begin to rise as the Fed begins to raise short term rates. When and how quickly this occurs will be highly dependent on the key economic indicators such as employment, GDP, and foreign stability. The US will always lead the economic landscape and most will follow with regards to increasing short term rates.
Low oil prices are an indication rates will stay low for the foreseeable future and a sign the economy is not completely out of the woods, which is slightly contradictory to what the economic indicators might appear. If you want to purchase or refinance at the lowest of these rates, you should take advantage of them now.
Financing opportunities will continue to grow as lenders open the credit bucket to more borrowers. First time home buyers will be the biggest beneficiaries of this loosening of standards.
Much of today‚Äôs twenty something population who are traditionally our biggest first time homebuyers are living at home with parents because they are busy paying student loan debt. Lower down payment requirement will hopefully get them out of their twin size childhood beds and into their starter homes and condos.
We all know these sales will be a catalyst for growth in the housing market. ¬†
"As the year comes to an end I have been getting some questions from my current buyers and former clients about the market in general, where I think the interest rates are headed, and if it is going to hurt or help them sell their house. I have a few ideas to share but have to note that these are based on my experience and not some inside information I have.
The reality is that we have to remember that our 3.5% and 4.5% mortgage rates are courtesy of a monumental effort to repair our economy at large. These are not ‚Äėtypical rates‚Äô and think otherwise is shortsighted. If you listen to the unemployment reports we are approaching a typical ‚Äėnormal‚Äô unemployment rate and so the banks and regulators at the Fed will begin to pull back on their low interest rate policy. That will trickle into the mortgage market for everyone.
I would say to anyone looking to buy in the summer of 2015 to be prepared to have a rate that is about 1% point higher than you get quoted today.
Mortgage rates begin 2015 at their lowest levels in more than a year. By 2016, rates could be higher or they may have moved¬†lower -- ¬†It's impossible to know what will happen for sure. As a homeowner or home buyer, then, be ready to act quickly.
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The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Barry L. Systems Analyst
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2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)