Factors That Impact Mortgage Rates

Mortgage rates in 2019 are as low as they’re ever been. The downward trend caught a lot of people by surprise. In 2018, there were predictions that they’d be on the rise, possibly moving to 5 percent and higher. Instead, they’ve ducked comfortably under 4 percent. Will they stay there? If you’re thinking of buying a home, do you have to jump in now or say goodbye to your best opportunity to nail down inexpensive financing?

Will Low Rates Continue?

Most experts think so. A survey of 10 real estate and finance professionals by The Mortgage Reports found that most of them expected 2020 rates to continue at 2019 levels. The average prediction was that rates will remain under 4 percent, with 30-year rates in the high threes and 15-year in the low threes. Two disagreed, with one saying they would move back above 4 percent and one forecasting they would dip below three.

Could the Experts be Wrong Again?

After all, the drop in 2019 fooled them. There are several things that could happen in 2020 to change the outlook. We’re overdue for a recession – the economy has been growing for 10 years now and it won’t grow forever. A severe one could drop rates even lower. Another X-factor is trade wars, which tend (although not with absolute predictability) to foster low rates. A resolution of international trade disputes could actually cause mortgage rates to rise. Also, the increasing federal deficit is bringing new debt to the market, which may cause mortgage rates to have to rise to attract investors.

Historical Perspective

Most young people and many middle-aged people have no recollection of inflation and high interest rates. In the 1980s, mortgages peaked around 16 percent. There was a slow decline until the turn of the century, and even in the first decade of the new century rates hovered in the 5 to 6 percent range. It’s only since 2009 that they’ve dropped to under 5 percent. Even a rise from today’s level would leave a rate that’s low by historical standards.

What Does This Mean for Buyers?

Continued low interest and mortgage rates (along with other factors such as low unemployment) will continue to stoke demand and keep housing prices on the rise. Low rates put home ownership within the reach of more buyers: on a $250,000 home, a 1 percent change will make a difference of about $200 in a monthly payment.

Even if mortgage rates get lower, some of a new home buyer’s savings will be offset by a faster rise in prices. If you’re not in a position to buy today, indications are that the low rate opportunity will be open for a while longer. But if you’ve been thinking about moving on home ownership, it’s hard to imagine there’ll be a more opportune time to get a friendly mortgage. With rates as low as they are, if the experts are wrong there’s more room for interest to move up than to move down.

This may also be an excellent time for current homeowners to refinance, especially those with high rates or variable rates. Consider all the costs as well as the length of the new mortgage, but there’s a good chance the numbers will work out.