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Things are looking up, at least as far as mortgage rates are concerned as we head into 2014 and even beyond into 2015.
Just how far up? The Mortgage Bankers Association experts are predicting in their mortgage interest rates forecast for 2014 that interest rates for a 30-year fixed-rate mortgage are likely to creep pass the 5 percent mark next year and then keep right on trekking upward, with the MBA predicting that rates are likely to climb as high as 5.3 percent by the end of 2015.
We have to agree with the forecast for a moderate upward trend through 2014, though we won’t be surprised to see rates stay closer to the 5.1 to 5.2 mark as 2015 draws to a close.
Any mortgage interest rates forecast that has rates moving steadily in one direction is a far cry from the mini-roller coaster ride home buyers and those seeking to refinance have dealt with over the past year. After a fairly tranquil 2012, when 30-year-fixed-rate mortgages fluctuated ever so slightly here and there to average about 3.66 percent, 2013 was another story.
Sure, it started out looking like business as usual, coming out of 2012. In fact, rates hovered right around the 3.4 to 3.5 percent mark for a full five months, never foreshadowing the ups and downs that lie ahead. But by June, rates had climbed all the way up to the 4 percent mark and from there, things got just a little bit crazy and as soon as you thought you knew what the rate was, it was likely to have jumped up or down once again.
Interest rates leaped a half percentage point in July and August, hovering for just a bit at 4.5 percent. Then rates began sliding back down to 4.1 percent in October and holding there, more or less, for the remainder of the fall season before creeping back up to 4.4 percent as the year winds down.
We aren’t going out on much of a limb with our mortgage interest rates forecast by predicting rates are soon going to reach 4.5 percent on their way to the 5 percent mark—and beyond—that we are expecting for 2015. As the economy continues to slowly improve, the Federal Reserve will taper its $85-billion per month bond-purchasing program beginning in early 2014 and likely halt it altogether by September 2014. The Fed’s bond-buying program has been keeping mortgage rates down, but the Fed has hinted in recent months that it plans to wind down the program.
The takeaway for you should be that rates are almost certainly headed upward and the better the economy gets, the higher that upward climb is likely to get.
Freddie Mac’s chief economist Frank Nothaft recently told CNN that he expects rates to hit 5 percent as early as mid-2014. If his prediction holds true, that may have us tweaking our estimate that rates are likely to stay just slightly below 5.3 percent to close out 2015, but for now we stand by that figure.
Despite the end of the bond-buying program, the temptation to fall into lockstep with Nothaft’s prediction is tempered by the fact that Congressional bickering and threats to close down the government are not exactly the fodder of fast economic growth. Another battle is all but imminent the first six weeks of 2014, when the debt ceiling needs to be lifted again, which we believe could slow the economy and keep interest rates from climbing so quickly, despite the Fed’s actions.
Even if interest rates surprise us by a tenth of a percentage point or two, and come closer to the 5.3 percent mark by the close of 2015, no one in the industry–including us–seems willing to argue that the writing isn’t already on the wall for rates to continue a steady upward trend for 2014 and through 2015.
But overall, 2014 should still be a healthy home-buying year, with plenty of opportunities to purchase as well as lower down payments, and interest rates most buyers will still find very palatable. With interest rates almost certainly to rise as the months tick by, now is the time to get off the fence and look into financing a new home purchase.