Curve

Housing agency Freddie Mac just lowered its mortgage rate forecast for 2019-2020

Peter Warden
The Mortgage Reports editor

Freddie’s fantastic mortgage rate forecast

When Freddie Mac published its latest mortgage rate forecast on May 15, it contained good news for homeowners and homebuyers alike. Because it revealed that its team of specialist economists is optimistic. It reckons mortgage rates will probably rise only a little between now and the end of 2020.

For a 30-year, fixed-rate mortgage (FRM), it expects them to average 4.3 percent through this year. And, as an annual average, to inch up to just 4.5 percent in 2020. That’s way down on many older forecasts.

Check today's rates with top lenders here. (Jun 24th, 2019)

More good news for homebuyers and owners

But it’s not just Freddie’s mortgage rate forecast that’s positive. Its new report contains more predictions that are good news for those with interests in the property market. To start with, it reports that home sales are “showing signs of recovery,” making it easier for existing owners to move.

However, it doesn’t expect home prices to shoot up, which could cause difficulties for those saving up for their first down payment. Prices will continue to rise (music to existing owners’ ears) but at a gentle rate — not too far above the general inflation rate for consumer prices.

Meanwhile, Freddie’s team expects the unemployment rate to remain close to its current historical lows. And that’s another plus for the housing market. Unemployed people rarely buy homes.

Another welcome mortgage rate forecast

If it were only Freddie’s economics team that was being this positive, you could dismiss its forecasts as misplaced optimism. But Fannie Mae (Freddie’s big sister in the government-sponsored enterprise league) has its own economists. And they’re similarly bullish in their May housing forecast.

In fact, when it comes to its mortgage rate forecast, Fannie’s even more optimistic. It expects average rates for 30-year FRMs to settle down at 4.2 percent in the current quarter (Q2 2019). And it predicts they’ll stay at that level in every succeeding quarter until the end of 2020.

Discover more about Freddie and Fannie: Will change at Fannie Mae and Freddie Mac mean higher mortgage rates?

Goldilocks housing market

In that May forecast, Fannie also expects home sales and median home prices (both new and existing) to show modest growth. Of course, that occurs within seasonal variations rather than as a straight-line increase. And, overall, it has to be good news.

Of course, it isn’t perfect for existing homeowners. They’d love to see their biggest assets (normally) go up in value as fast as possible.

But rapidly rising home prices lock first-time buyers out of the market. Imagine saving as hard as you can for your first down payment. And all the time watching your goal become less and less attainable.

So this may be a Goldilocks moment in the property market. It’s not too hot. It’s not too cool. In fact, it’s just right.

Mortgage Bankers Association on board

There have been times in the past when a caveat would have been necessary here. We’d have had to say, “Although Freddie and Fannie agree, the Mortgage Bankers Association (MBA) is less optimistic.”

And, while that’s true in May, it applies only a bit and then mostly to its mortgage rate forecast. The MBA’s economists’ one is just a little worse than Fannie’s and Freddie’s.

It expects average rates for 30-year FRMs to dip to 4.3 percent this quarter (Q2 2019) and then ease up to 4.4 percent for the rest of the year. And it predicts those will be at 4.6 percent for all of 2020, except the first quarter when they’ll be 4.5 percent.

The MBA alone sticks its neck out with forecasts into 2021. It thinks those rates will average 4.6 percent across that year, too.

Why you should care

It’s worth glancing back through these forecasters’ archives. You’ll see that they often expected mortgage rates to rise higher and faster than they actually did.

On a $350,000 mortgage, a 1 percent lower rate saves your $200 a month.

For example, a year ago, in May 2018, the MBA expected average rates on 30-year FRMs to be 5.3 percent in this quarter and 5.4 percent for the rest of 2019. That’s close to 1 percentage point higher than they actually are.

And even a single percentage point matters. On a $350,000 mortgage, a 1 percent lower rate (say, 4.3 percent as opposed to 5.3 percent) saves your $200 a month! That’s $2,400 a year or $86,400 over the 30-year life of the most common FRM.

Other advantages of low mortgage rates

And low mortgage rates don’t just see you keep more money in your bank account every month. They come with other advantages.

For example, they make you more mobile. You’re more likely to move home if you aren’t going to face a much higher rate when you get a new mortgage.

And they let you access the “equity” (the difference between the market value of your home and your mortgage balance) more affordably. If you need a whole new mortgage in a cash-out refinance, you’ll be glad of a low rate.

The same applies if you want a second mortgage in the form of a home equity loan or home equity line of credit (HELOC). Low rates give you more choices.

Related: 4 cash-out refinance options that put your home equity to work

New opportunities

And those choices can be even more exciting if you’ve ever harbored ambitions to become a real estate investor. Many a business plan has been sunk by high mortgage rates.

Indeed, now might turn out to be a once-in-a-lifetime opportunity for you to take the plunge. Some real estate investors have done very well in life!

Should you relax?

None of this means you should take your sweet time over taking advantage of today’s low rates. We’ve already seen how those experts who create mortgage rate forecasts often get them wrong.

Indeed, those politicians and economists who predict a rosy future might be proved right. And, in that case, we could still see higher rates sooner than anyone currently expects.

So don’t see these latest mortgage rate forecasts as an excuse for sitting back and relaxing. Time might yet be of the essence.

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