In Pursuit Of An Accurate Mortgage Rate Forecast
Home buyers and refinancing households want to know what rates will do next.
Mortgage rates are terribly unpredictable. Consumers find themselves checking rates daily, even hourly. They want to catch the lowest rates, but don’t want to chase them on the way up.
If that sounds like you, you’re not alone. Any prospective mortgage applicants would want a Magic 8 Ball that would show them rates for next week, next month, and next year.
Unfortunately, no such predictor exists.
Still, it can be constructive to examine how rates have fared so far this year, and look at what might influence rates in the second half of 2016.
Answering the question, “will mortgage rates rise?” is certainly not easy, but it’s still worth asking.
Rates Have Inched Down In 2016
Most rate predictions in late-2015 were wrong. Rates have fallen, not risen, so far this year.
Dan Smith, president of PrivatePlus Mortgage in Atlanta, says the cost to finance a home purchase remains very affordable, as evidenced by 30-year conventional mortgage rates ranging from approximately 3.5% to 4.25% in the first half of 2016.
“This range is lower than most predicted, and at best, has approached three-year lows,” says Smith.
Alan MacEachin, corporate economist with Navy Federal Credit Union in Vienna, Va., notes that rates have been on a downward trend most of the year – with the rate on a 30-year fixed mortgage coming down around 40 basis points (0.40%), to approximately 3.625%, since early January.
Trends That Impact Mortgage Rates
The most common factors affecting rate movement revolve around economic indicators, including employment data, gross domestic product, stock market trends, home sales, home starts, and Federal Reserve policy decisions or commentary.
“If these indicators offer signs that the underlying factors are showing improvement, rates may rise accordingly,” Smith says. “Britain’s potential exit from the European Union and oil prices may also have an impact on the financial markets.”
Other factors could move rates substantially, says Smith, like geopolitical unrest and the changing political landscape.
“Wildcards that could impact rates in the second half of the year include the upcoming U. S. presidential election and worries over China’s banking crisis due to rising loan defaults,” says MacEachin.
Additionally, keep a close eye on wage growth and inflation – “if they continue to tick up, rates could go up with them. If we see sustained upward movement in the Personal Consumption Expenditure Price Index and wages, inflation is heading higher,” says MacEachin.
Rate Predictions Vary Widely: Rates Could Drop, Or Go Past 4.5%
Smith says the consensus is that rates will rise gradually as the year closes.
“I predict fixed rates will rise slightly into the 4% to 4.625% range, depending on fee structure,” says Smith.
In general, higher fees mean lower rates, and vice versa. Rates can vary widely depending on the origination fee, discount points, and other closing costs.
MacEachin’s hunch is that fixed rates will continue to remain near their current levels, possibly increasing by an eighth or quarter point at most.
That would put rates only in the high 3s.
“I don’t believe the world economy or U.S. economy will improve substantially enough to drive mortgage rates significantly higher, and there’s always the possibility they could go lower – although there is more room for rates to go up than down,” says MacEachin.
Andrew Saltman, CEO of Ponte Vedra Beach-based Carbon Capital, says you cannot forecast rates for the remaining half of 2016 based on what happened in the first half.
“Predicting July through December, we should see about a half percent increase in mortgage rates,” he says.
Joe Parsons, senior loan officer with PFS Funding in Dublin, Calif., on the other hand, believes there is only a one in 10 chance that rates will go up by a half percent or higher by the end of the year.
“The reason I say this with such confidence is that mortgage rates are controlled by the price of mortgage-backed securities. These are pooled mortgages that Fannie Mae and Freddie Mac have bought, and they are purchased and sold by investors, just like any other type of bond.”
Parsons continues by saying that investors love mortgage-backed securities for their relatively high return and rock-bottom risk level.
As long as investors keep flocking to mortgages as an investment, rates will stay low.
However, the global economy could tighten and other investments could yield more profit. If that happens, the price of mortgage-backed securities will drop somewhat and mortgage rates will tick up.
Mortgage rates and the prices of mortgage-related securities move in opposite directions.
If non-mortgage investments appear more attractive to investors, Parsons expects mortgage rates to climb by no more than 0.375% by late 2016.
Rate Advice From The Experts
Current rates are only about a quarter point away from the lowest mortgage rates ever — 3.31% for a 30-year fixed-rate conventional mortgage in late 2012.
rates and rates for VA home loans are even lower. These government-backed programs are considered very low risk by the lenders who offer them. Affordable rates are passed on to the consumer.
“I would be pretty satisfied with that and inclined to lock in now versus waiting,” MacEachin suggests.
“Lock in a rate now if the current options fit within your budget requirements. It seems that there is a greater chance for rates to rise than fall further at the present time,” says Smith. “But make sure that you take the time to properly prepare with your mortgage professional in advance of locking in a rate.”
Saltman suggests being mindful of key dates that could influence your rate timing.
“Borrowers should lock in before the U.S. Bureau of Labor Statistics releases its jobs report, which occurs the first Friday of every month”
The jobs report, also called the Non-Farm Payrolls report, can swing rates widely because it’s arguably the most important indicator of the economy’s health. A growing economy can be a precursor to higher rates.
Rate Changer: The Federal Reserve Meeting
Home buyers and refinancing households should also watch for Federal Reserve policy meetings, according to Saltman. They happen about every six weeks.
The Federal Reserve releases a statement after each meeting that provides clues about the job market, inflation, and future rate-setting policy.
Unexpected news can shift mortgage rates dramatically. The Fed doesn’t set consumer mortgage rates directly, but it does set the tone for the nationwide rate environment.
Scheduled Federal Reserve meetings for the remainder of 2016 are as follows.
- June 14-15
- July 26-27
- September 20-21
- November 1-2
- December 13-14
The next meeting, happening this week, is one of the more anticipated this year. The Fed was expected to hike the federal funds rate in June, but a weak jobs report for the month of May very well could have put a lid on any immediate rate increases.
No matter what happens, remember to keep things in proper perspective. Even if mortgage interest rates creep up, they would still be within shouting distance of the record low.
Now through the end of 2016 should continue to be an excellent time to finance a home and capitalize on low rates.
What Are Today’s Rates?
Stubbornly low rates have persisted throughout 2016. Despite calls in late 2015 that rates would increase past 4.5% by now, rates sit nearly 100 basis points (1.0%) below that.
Check today’s rates with a live quote. Check your eligibility to purchase or refinance your home and save money with current mortgage rates.