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September 2018 mortgage rates forecast (FHA, VA, USDA, Conventional)

Tim LucasThe Mortgage Reports Contributor

Mortgage rates forecast for September 2018

Mortgage rates are better now than they have been since mid-April, says mortgage agency, Freddie Mac.

It’s a great time to re-check the market. Dropping rates could help home buyers qualify, plus put refinancing homeowners “in the money” for a refinance.

Better yet, rates could continue to fall. Crises overseas — plus slowing home sales at home — are putting a lid on U.S. mortgage rates.

Want to grab a good rate? Today could be the day.

Verify your new rate (Sep 19th, 2018)

Predictions for September

There is no shortage of market-moving news in September. Developments now will impact your ability to buy or refinance this month and in the remainder of the year.

1. Turkey’s currency crisis could keep U.S. mortgage rates low

The Turkish lira has seen better days.

It has lost half its value compared to the U.S. dollar in the past year.

To make matters worse, President Trump doubled import tariffs on steel and aluminum coming from the country in August. That was in response to the jailing of an American pastor.

Now, investors are worried Turkey’s economic trouble will spread. Europe’s banks hold Turkish assets, so a collapse of the currency could spell trouble for markets outside the country.

Investors typically purchase safe-haven assets like U.S. mortgage-backed securities during economic uncertainty. That increases demand for mortgage-based assets and makes mortgage rates fall.

Nobody wants a currency-induced recession, but for now, this situation is holding rates lower than they might be.

If the crisis clears up, mortgage rates could rise. It could be a good idea to lock in rates that are hitting 4-month lows.

Verify your new rate (Sep 19th, 2018)

2. Misinterpretation of slower housing data lowers rates

Existing-home sales are slowing down.

In July, sales of previously-owned homes fell for the fifth straight month, below year-ago levels. Sales are now as low as in February 2016.

Economists fear this is the beginning of an economic slowdown, which would lead to lower rates.

But lower rates — if they come — will be the result of misinterpreted data.

“Home prices have reached unprecedented levels after 77 straight months of year-over-year increases.”

Home sales aren’t slowing because people lack confidence in the economy. Rather, home prices have reached unprecedented levels after 77 straight months of year-over-year increases. The average home cost $258,300 in July 2016 but now average $269,600 according to the National Association of Realtors.

Plus, the 30-year fixed rate two years ago sat near 3.5%, but now, 4.5%.

Higher rates and prices equal a $186-per-month jump in housing costs since mid-2016.

No, home buyers aren’t afraid of the future. Some buyers are priced out, waiting for the opportune time when either rates or prices fall.

Verify your new rate (Sep 19th, 2018)

3. Tariff wars will cause rates to fall…or rise

President Donald Trump is working toward trade deals that he sees as fair for the U.S. economy and workers within it.

Tariffs are now in effect for steel and aluminum, which affects companies that make everything from soda to washing machines. More than 1,300 Chinese products are on the list, and Trump has proposed a new 20 percent tariff on cars coming from the European Union (EU).

Tariffs — proposed or actual — will pull mortgage rates in opposite directions simultaneously this month. That’s because the final effect of these changes is unknown, and markets can only speculate on each new development.

The case for falling mortgage rates

Rates could fall due to increasing concerns of a recession. In a perfect world, raising prices of foreign goods encourages domestic production, which helps the home economy.

But tariffs rarely go unanswered. Typically, the foreign country slaps tariffs right back, resulting in a trade war.

That means American companies have a harder time selling goods outside the U.S., resulting in layoffs and decreased production. For example, motorcycle maker Harley Davidson already announced moving some operations overseas due to retaliatory EU tariffs.

The tax policy nonprofit Tax Foundation estimates more than 300,000 jobs could be lost due to existing and proposed tariffs.

Mortgage rates could fall if investors predict that trade wars would do more harm than good.

The case for rising mortgage rates

On the other hand, tariffs could induce inflation, which is bad for mortgage rates.

Tariffs increase prices for raw materials and other products from foreign sources. Companies pass along higher prices to consumers.

Looking at a very specific example, Toyota estimates that proposed tariffs on foreign autos would raise the price of the popular Camry by $1,800. Additionally, Coca-Cola has announced higher soda prices due to tariffs on aluminum.

Tariffs could prove inflationary if similar results are seen throughout the economy.

Such inflation erodes the value of long-term investments such as mortgage-backed securities (MBS), the asset upon which U.S. mortgage rates are based.

When inflation picks up, mortgage rates must rise to keep investors buying MBS.

Should you lock in now?

As a mortgage shopper, it’s likely unwise to bet on a tariff-induced recession (and therefore lower rates). That could take a while if it happens at all.

But, do watch for talk of new, big tariffs. Rates could drop if investors are worried about a recession in the aftermath.

Such rate drops would be short-lived, due to the recent upward trajectory of rates. Complete your home purchase or refinance application so you’re ready to lock it in when the time comes.

Start the home buying or refinance application process here. (Sep 19th, 2018)

4. The Fed will keep its foot on the gas

The next Federal Open Market Committee meeting adjourns September 26. There’s a 96% chance that the group will raise its benchmark rate, according to CME Group.

And, expect another rate hike in December, for a total of four hikes this year.

But these “built-in” rate hikes present an opportunity for the mortgage rate shopper.

If, for some reason, the Fed does not raise rates in September or December, get ready to lock. That would mean the group fears economic slowdown and would be a huge shock to investors.

The chances of a no-hike decision are small, but grow larger for December. And, rates could fall even with a rate hike if the Fed presents a cautious tone in its post-meeting communications.

Fed Meeting June 2018

As a mortgage shopper, it pays to watch the Fed’s moves intently. A single word in a post-meeting Fed statement can swing mortgage rates for better or worse.

Verify your new rate (Sep 19th, 2018)

Mortgage rate predictions for 2018 and 2019

Mortgage rates have already surpassed predictions cast by major housing agencies. Now, the question is, what are these groups forecasting for the remainder of the year?

Agency 2018 Prediction 2019 Prediction
Mortgage Bankers Association 4.9% 5.4%
Freddie Mac 4.6% 5.1%
Fannie Mae 4.5% 4.5%
Realtor.com 5.0% No forecast
National Association of Realtors 4.5% 4.8%
Kiplinger 4.7% No forecast
National Association of Home Builders 4.5% 5.0%

To sum it up, everyone is predicting higher rates. Today’s rate might be as good as we’ll see for years to come.

Verify your new rate (Sep 19th, 2018)

Advice for September 2018

Knowing what will happen in September is only half the battle. As a mortgage rate shopper, now you need to know the best actions to take this month.

Get up to 4 mortgage quotes here. (Sep 19th, 2018)

Consider an adjustable-rate mortgage (ARM)

Not all mortgage rates act the same in any given economy.

Adjustable rate mortgages rates rise more slowly than their fixed-rate counterparts.

ARMs are 30-year loans that are fixed for a certain period of time — usually 3-7 years. Rates change based on rates after the initial fixed period.

Markets usually price ARMs more reasonably when rates are rising. That’s because more risk is passed to the consumer. Consumers who are willing to accept that risk can save a lot of money.

“Adjustable mortgage rates rise more slowly than fixed-rate ones.”

According to Freddie Mac data, ARMs are currently 0.69% below 30-year fixed rates and 0.16% below 15-year fixed loans.

ARMs and 15-year fixed rates are about the same when rates are stable. But in rising environments, the 15-year fixed (green line) rises faster than an ARM (orange line).

An ARM loan currently saves $120 per month over a 30-year fixed rate for $300,000.

ARM vs Fixed Rate Freddie Mac

Image: Freddie Mac

Subdued ARM rates mean you can go back in time, in a sense. Throughout 2017, 30-year fixed rates hovered in the high 3s. Now, adjustable-rate mortgages are in the same range. You can still capture rates that few realize exist.

Learn more about ARM loans here.

But ARMs are not without risk. If you are not able to sell the home, refinance, or otherwise pay off the loan, your payment could rise.

The good news is that ARMs are now heavily regulated. They give you a stable payment for up to 7 years. They then adjust just once per year, and there are limits to how much the rate can move upward.

For home buyers or refinancing households, ARMs could be the low-cost answer they’ve been looking for.

Get an adjustable rate quote here. (Sep 19th, 2018)

Loan Product Rate Updates

Many mortgage shoppers don’t realize there are many different types of mortgage rates. But this knowledge can help home buyers and refinancing households find the best value for their situation.

Following are updates for specific loan types and their corresponding rates.

Conventional loan rates

Conventional refinance rates and those for home purchases are still low despite recent increases.

According to loan software company Ellie Mae, the 30-year mortgage rate averaged 4.93% in July.

This is slightly higher than Freddie Mac’s 4.54% average because it factors in low credit and low-down-payment conventional loan closings, which tend to come with higher rates.

Lower credit score borrowers can use conventional loans, but these loans are more suited for those with decent credit and at least 3% down. Five percent down is preferable due to higher rates that come with lower down payments.

Twenty percent of equity is preferred when refinancing.

With adequate equity in the home, a conventional refinance can pay off any loan type. Got an Alt-A, subprime, or high-PMI loan? A conventional refi can take care of it.

For instance, say you purchased a home three years ago with an FHA loan at 3.5% down. Since then, home values have skyrocketed.

You refinance into a conventional loan (because you now have 20% equity) and eliminate FHA mortgage insurance.

This could be a savings of hundreds of dollars per month, even if your interest rate goes up.

Getting rid of mortgage insurance is a big deal. This mortgage calculator with PMI estimates your current mortgage insurance cost. Enter 20% down to see your new payment without PMI.

Verify your conventional loan eligibility (Sep 19th, 2018)

FHA mortgage rates

FHA is currently the go-to program for home buyers who may not qualify for conventional loans.

The good news is that you will get a similar rate — or even lower one — with an FHA loan than you will with conventional.

FHA loan calculator:

Related: Read more about FHA costs and requirements on our FHA loan calculator page.

According to loan software company Ellie Mae, which processes more than 3 million loans per year, FHA loan rates averaged 4.95% in July, while conventional loans averaged 4.93%.

Another interesting stat from Ellie Mae: About 30% of all FHA loans are issued to applicants with scores below 650.

FHA loans come with mortgage insurance. But overall cost is not much more than for conventional loans.

A little-known program, called the FHA streamline refinance, lets you convert your current FHA loan into a new one at a lower rate if rates are now lower.

An FHA streamline requires no W2s, pay stubs, or tax returns. And you don’t need an appraisal, so home value doesn’t matter.

Learn more about the FHA streamline refinance here.

Verify your FHA loan eligibility (Sep 19th, 2018)

VA mortgage rates

Homeowners with a VA loan currently are eligible for the ever-popular VA streamline refinance.

No income, asset, or appraisal documentation is required.

If you’ve experienced a loss of income or diminished savings, a VA streamline can get you into a lower rate and better financial situation. This is true even when you wouldn’t qualify for a standard refinance.

But don’t overlook the VA loan for home buying. It requires zero down payment. That means if you have the cash for closing costs, or can get them paid for by the seller, you can buy a home without raising any additional funds.

“Don’t overlook the VA loan for home buying. It requires zero down payment.”

VA mortgages are offered by local and national lenders, not by the government directly.

This public-private partnership gives consumers the best of both worlds: strong government backing and the convenience and speed of a private company.

Most lenders will accept scores down to 620, or even lower. Plus, you don’t pay high-interest rates for low scores.

Quite the contrary, VA loans come with the lowest rates of all loan types according to Ellie Mae. In July, 30-year VA mortgage rates averaged just 4.75% while conventional loans averaged 4.93%

Check your monthly payment with this VA loan calculator.

There’s incredible value in VA loans.

Verify your VA loan eligibility (Sep 19th, 2018)

USDA mortgage rates

Like FHA and VA, current USDA loan holders can refinance via a “streamlined” process.

With the USDA streamline refinance, you don’t need a new appraisal. You don’t even have to qualify using your current income. The lender will only make sure that you are still within USDA income limits.

More about the USDA streamline refinance.

Home buyers are also learning the benefits of the USDA loan program for home buying.

No down payment is required, and rates are ultra-low.

Home payments can be even lower than rent payments, as this USDA loan calculator shows.

Qualification is easier because the government wants to spur homeownership in rural areas. Home buyers might qualify even if they’ve been turned down for another loan type in the past.

Verify your USDA loan eligibility (Sep 19th, 2018)

Mortgage rates today

While a monthly mortgage rate forecast is helpful, it’s important to know that rates change daily.

You might get 4.5% today, and 4.6% tomorrow. Many factors alter the direction of current mortgage rates.

To get a synopsis of what’s happening today, visit our daily rate update. You will find live rates and lock recommendations.

This month’s economic calendar

The next thirty days hold no shortage of market-moving news.

  • Friday, September 7: Nonfarm Payrolls, wages, unemployment rate
  • Thursday, September 13: Consumer Price Index (a key inflation gauge)
  • Friday, September 14: Retail Sales
  • Wednesday, September 19: Housing Starts
  • Thursday, September 20: Existing-Home Sales
  • Wednesday, September 26: FOMC meeting adjourns

Now could be the time to lock in a rate in case these events push up rates this month.

What are today’s mortgage rates?

Despite recent upticks, low mortgage rates are still available.

Get a personalized mortgage rate analysis to see how much you can save.

Verify your new rate (Sep 19th, 2018)

 

Selected sources:

  • http://fortune.com/2018/08/13/turkey-lira-to-usd-currency-collapse/
  • https://www.washingtonpost.com/business/2018/08/16/mortgage-rates-move-lower-second-week-row
  • https://www.nar.realtor/newsroom/existing-home-sales-slip-07-percent-in-july