Curve

Mortgage rates predicted to fall to “the lowest they’ve ever been” 

Peter Miller
The Mortgage Reports contributor

Bold prediction from a mortgage rate guru

Mortgage rates fell to 3.84% in mid-June according to Freddie Mac, but could they go lower? A lot lower? Even the lowest they’ve been in 50 years?

Mortgage rate commentator Barry Habib is making a bold prediction, arguing that rates will reach a new all-time record low, falling even below the weekly 3.31% seen in 2012.

“You have not seen the lows in 10-year treasuries or in mortgage rates,” says Habib. He predicts that in the next 12 months “mortgage rates will be the lowest they’ve ever been.”

Lock in today's low rates. (Sep 22nd, 2019)

Changing Forecasts

Don’t laugh. Back in November – hardly a long time ago – most forecasters believed that mortgage rates would rise and hit 5% this year and maybe a little more.

Why should we now believe that rates are likely to fall? Are not all predictions equally suspicious? After all, the stock market is soaring, unemployment is minuscule, and home prices keep going up.

According to the National Association of Realtors, April’s home price increase marked “the 86th straight month of year-over-year gains.”

Verify your new rate (Sep 22nd, 2019)

Is the massive economic winning streak about to end?

Such good news suggests economic expansion.

Typically, a hot economy means higher mortgage rates.

There’s more competition for cash so companies can expand. Corporations borrow to pay for new equipment and facilities. At the same time salaries go up, enabling people to borrow more.

But there’s a catch. Rosy predictions regarding the economy are now being re-written. More forecasters are calling for a slower economy next year, not a hotter one.

More forecasters are calling for a slower economy next year, not a hotter one.

We have not had a recession since 2009. The economy has to slow at some point. Every streak must end. And when the economy slows, mortgage rates fall.

Following are a few predictions of a lackluster economy.

Fannie Mae: This month Fannie Mae cut its projections for full-year 2019 and 2020. It now expects the US economy to expand by 2.1% this year and 1.5% next year. Both predictions are a touch lower than earlier forecasts and neither is anywhere near the 3% forecast by Kevin Hassett, chairman of the White House Council of Economic Advisers.

Jobs creation: Total nonfarm payroll employment increased by 75,000 jobs in May, according to the U.S. Bureau of Labor Statistics. The May figure is more than 100,000 jobs below the level expected by many economists.

2020 slowdown? “Recession risks are perceived to be low in the near term, but to rise rapidly in 2020,” according to Gregory Daco, chair of the National Association of Business Economists Outlook Survey and chief U.S. economist, Oxford Economics. “Panelists put the odds of a recession starting in 2019 at 15%, climbing to 60% by the end of 2020.”

Mortgage rates to hit new low?

There are a lot of things that can change the economic outlook including a trade war with China or Mexico and a real war with Iran. But if we assume that things roll along pretty much “as is” then Habib’s prediction is well within the realm of reason.

As this is written mortgage rates are in the 3.8% range. That’s way below the long-term mortgage norm which is more like 8% since 1971.

In fact, rates are not too far from that all-time weekly low, 3.31% seen in 2012.

Even if rates do not dip into record territory the mortgage rates we have today are still remarkably-attractive by historic standards.

Habib’s prediction is well within the realm of reason

But could mortgage rates go lower still? The answer is yes. Here’s why.

Mortgage rates are different than the Fed rate: The Federal Reserve sets bank rates and not mortgage rates. Mortgage rates are a by-product of the supply and demand for capital. They move independently. Mortgage rates could fall more than the Fed rate.

Foreign investors seek a positive return: There is a lot of foreign money that investors might want to park in US mortgage securities. Higher demand for mortgage-backed bonds drives down. consumer mortgage rates. Currently, negative interest rates exist in big markets like Europe and Japan. That means you have to pay to keep your money there. US mortgage-backed rates may be low, but they’re not below zero.

Few foreclosures: We currently have very few foreclosures. We live in an era where most areas have limited inventory and rising prices. An owner with financial problems can – in most areas – avoid foreclosure by selling the property to pay off the mortgage. The lenders in this situation get their money in full while borrowers avoid big credit dings.

Rates are ultra-low. Secure a rate here. (Sep 22nd, 2019)

A new era for mortgage rates

Rates don’t have fall very much to set new records. The gap between today’s mortgage rates and a new low is only about 0.5%. New fighting in the Middle East, escalating trade wars, a sell-off on Wall Street, or the failure to resolve the Brexit dispute could easily bring mortgage rates much lower.

Lots of capital could flow into US mortgage bonds. Enough to change the supply/demand balance and push mortgage rates to new lows.

Capture record-breaking low rates

Just like the stock market, mortgage rates are wildly unpredictable.

Fortunately, rates available now — even without a massive drop — are better than they’ve been in almost 2 years.

Lock in today’s mortgage rates and enjoy low payments for decades to come.

Verify your new rate (Sep 22nd, 2019)