Update: mortgage rate forecasts for 2020 after the coronavirus

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Could mortgage rates continue to fall?

In the world of interest rates, so much can change in a relatively short period of time.

Concrete example: mortgage rate forecasts for 2020, given by experts Six months ago, did not happen.

The main housing authorities now have New mortgage rate forecasts for the post-coronavirus market.

Many of them say mortgage rates for the end of 2020 will stay below their current high of 3.29%.

If this is true, homebuyers and refinancers could benefit from record affordability the rest of the year and beyond.

Find and lock in a low mortgage rate. Start here (August 22, 2021)

Expect rates of 3% or less until 2021

The main housing authorities have been asked in recent weeks: where will 30-year fixed mortgage rates settle in the second half of 2020?

They agreed that the rates should end up being lower than they have been.

Agency 30-year mortgage rate forecast for the third and fourth quarters of 2020
Wells fargo 2.93%
NAR 3.10%
Fannie Mae 3.05%
Mean 3.18%
Freddie mac 3.20%
NAHB 3.25%
MBA 3.55%

If some of them are right, the 30-year average rate could break records and drop below 3%, creating a strong buying and refinancing environment throughout the year.

Consider that before 2020, the lowest rate recorded for a 30-year fixed rate home loan was 3.31%, reached at the end of 2012.

In March 2020, this brand was briefly beaten when rates fell to 3.29%.

More than a year ago, Mortgage reports even asked if we ever saw rates of around 2%. It hasn’t happened yet, but it is certainly possible.

What fuels this speculation is the fact that Fannie Mae and Wells Fargo recently predicted rates would hit about 2.9% this year or next.

Why mortgage rates fell in 2020

Katsiaryna Bardos is Associate Professor of Finance at the Dolan School of Business. She says several factors have resulted in today’s near record mortgage rates.

“The Federal Reserve reacted to the COVID-19 shock much faster than it responded to the conditions of the Great Recession of 2008,” Bardos emphasizes.

“In addition to reducing the fed funds rate to near zero, the Fed has significantly expanded its asset purchase program. This included buying billions of dollars in mortgage-backed securities, ”she explains.

“These actions have increased the supply of money and liquidity in the economy. And that has led to historically affordable mortgage rates.

“There is significantly weaker loan demand, falling inflation, and 10-year treasury bills close to zero. These factors will lead to lower rates. –Bruce Ailion, real estate agent and lawyer

Bruce ailion, Real estate agent and lawyer, agrees.

“There is significantly weaker loan demand, falling inflation, and 10-year treasury bills close to zero. These factors will drive rates down, ”he said. “The economy has been the hardest hit in decades. And the prognosis for significant post-COVID-19 recovery is poor. “

These and other reasons explain why mortgage rates should continue to stay low, according to Ailion. He expects rates to drop to 2.75% shortly.

Rates could continue to fall in 2020 if the economy remains slow

The idea behind lowering rates is to help jumpstart the economy. That’s what Suzanne Hollander, a faculty of real estate at Florida International University, teaches its students.

“Lower rates will encourage financial activity. They can convince people who are about to buy or refinance now rather than later, ”says Hollander.

Tilden Moschetti, a property lawyer, points out that mortgage rates in 2020 are expected to be lower than in 2019 – even before the pandemic hits.

“It’s because the consensus was that the economy was slowing down and growth would be down. The Fed had to respond by lowering rates, which it did, ”Moschetti said.

Check your new rate (August 22, 2021)

The Fed cut rates to near zero, so why aren’t mortgage rates at zero?

Contrary to popular belief, the Fed’s rate cuts do not control what happens to mortgage rates.

Consider that when the Fed reduce rates to zero, mortgage rates did not reflect this movement. They actually rose for a short time before dropping back to their previous average.

Chart showing how mortgage rates do not match the Fed Funds rate.  When the Fed cut rates close to 0, mortgage rates remained stable

While Fed Funds rate cuts often influence mortgage rates, the two are not directly related.

In reality, mortgage rates are controlled by larger movements in the US and global economies.

>> Related: Relationship between mortgage rates and the federal funds rate

“The coronavirus has wreaked havoc on the global economy,” says Rick sharga, president and CEO of CJ Patrick Company – which expects rates to drop to 3.1%.

Sharga points to US Treasury yields, which are generally a better indicator of mortgage rate movements than the federal funds rate.

“This has resulted in a massive amount of investment towards the relative safety of US Treasuries. This lowers their yields, ”explains Sharga.

“The interest rate on the 30-year fixed-rate mortgage tends to go up and down as [Treasury] yields. And these yields are currently close to their lowest levels in history. – Rick Sharga, President and CEO, CJ Patrick Company

“The interest rate on the 30-year fixed rate mortgage tends to go up and down along with these yields. And these yields are currently close to their lowest levels in history. “

Alan rosenbaum, CEO and Founder of GuardHill Financial Corp, supports these thoughts.

He notes that, “During a time of economic stress, money is reallocated from stocks to bonds as a safe haven. This is why a reduction in Treasury yields will generally lead to a reduction in mortgage rates. “

In fact, Sharga thinks mortgage rates should be even lower than they are today, based on those returns.

Will low rates help the housing market recover from the coronavirus?

Rosenbaum is optimistic about the effects low rates will have on the real estate market.

“Once the virus is gone and the big cities restart their economies, real estate will become more attractive again,” Rosenbaum said. “Homeowners will be looking for new homes, and lower rates will help people afford bigger homes. “

Mat Ishbia, president and CEO of United Wholesale Mortgage, is also optimistic.

“I predict that the housing industry will make a great contribution to the economic return of the United States following the impact of COVID-19,” Ishbia said.

“There will be a large buying market in the third quarter of 2020. Additionally, expect exceptionally low rates in the second half of this year, depending on market conditions,” he predicts.

“This will be a great opportunity for people to save money while buying their dream home in the second half of 2020.” –Mat Ishbia, President and CEO, United Wholesale Mortgage

“This will be a great opportunity for people to save money while buying their dream home in the second half of 2020.”

Others are not so optimistic.

“As rates fall, consumers should and will benefit from refinancing. But at some point, lower rates won’t motivate buyers to enter the market, ”says Ailion.

“Low mortgage rates and the resulting affordability may not be enough to support the real estate market,” warns Bardos.

“This is especially true following record unemployment and a narrower supply of homes on the market to choose from.”

Should we block a tariff now or wait?

The decision whether or not to lock in a mortgage rate will depend on your particular situation.

It also has a lot to do with your tolerance for risk.

If you set yourself now, there is always a possibility that the rates will go down.

But wait too long and rates might unexpectedly rise higher than you want.

This is why many professionals recommend against trying to time the market. Instead, if you’re in a good financial position with the prospect of staying in your job, capitalize on low rates today, which are near or near their lowest.

Many professionals recommend against trying to time the market. Instead, if you’re in good financial shape… capitalize on low rates today, which are at or near historic lows.

“This is especially true for those who want to refinance. Have your lender calculate the numbers to figure out if the refinancing costs are worth the amount you’ll save, ”suggests Hollander.

Rosenbaum is confident that the rates will not be any softer. Your window of opportunity for the biggest savings is now, he believes.

“Due to the systemic risk in the industry due to forbearance and unemployment, the banks will widen their credit spreads. Therefore, rates will not fall further, ”says Rosenbaum, who expects a rate of 3.5% before the end of the year.

Check your new rate (August 22, 2021)

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