When it comes to forecasting interest rates, the predictions have sounded like a broken record for the past year: short-term rates aren’t expected to be affected by the Feds tightening things anytime soon and long-term rates are likely to see only a gradual increase.
Even mortgage interest rates last 30 days have been more of the same:
Forecasters are now predicting the Feds won’t start tightening the belt till at least spring 2015.
Most predictions are for long-term rates to increase gradually as the global economy continues to show improvement, and the increase is more likely to come as a series of jumps and plateaus than as a gradual climb.
So, what does this mean for mortgage rates in particular? Long-term mortgage rates are still likely to creep up to around the 6 percent mark as 2015 draws to a close, but don’t expect that to shake the housing market or the economy in general.
That type of increase in rates is a natural reaction to stronger economic growth, not a sign of trouble brewing elsewhere that is then impacting rates. As the economy continues to expand, a bit of slow down via higher rates is to be expected.
The big news for mortgage interest rates last 30 days came during the second half of May as rates continued to tumble to new lows, falling first to 4.29 percent, then to 4.21 percent and finally closing out with Freddie Mac reporting rates of 4.12 percent for a 30-year fixed rate as of May 29.
Rates for 15-year, fixed rate mortgages—particularly popular for refinancing—also dropped during the month. Most financial experts point to continued low rates on U.S. Treasury bonds as the reason.
Bond rate changes are primarily due to global turbulence and some weakening of the domestic economy. Treasury bond rates are typically considered the benchmark for other consumer interest rates.
Slower economic growth in China and unrest in the Ukraine are expected to continue impacting Treasury debt for the near term, pushing yields downward and dragging mortgage rates with them. Today’s rates are still significantly higher than May 2013 when the 30-year rate dropped all the way down to 3.35 percent.
Continued low rates spell good news for homebuyers, and consequently continued strengthening of the housing market. But that doesn’t mean potential buyers aren’t still being impacted by stricter lending practices. Those with lower credit scores or other blemishes on their credit report are often still locked out from enjoying the benefits of today’s low mortgage rates.
The wildcard in interest rate predictions going forward is the chance of another recession. A recent survey of economists conducted by The Wall Street Journal put the risk at around 12 percent. Not a big chance perhaps, but certainly a factor to keep in the back of your mind if you are trying to do the difficult task of guessing where interest rates are headed—and how quickly.
One thing is more of a sure bet: if a recession did show up on the horizon, the Fed wouldn’t be tightening short-term rates after all and long-term interest rates would not be likely to rise against market forces.