Download Mortgage Rates May Stay Low for a Long Time

Mortgage Rates May Stay Low for a Long Time
Why aren’t they rising? Are they the new normal?
Provided by DSA Financial Group
In November 2012, the interest rate on a 30-year home loan averaged just 3.31%. That was an
all-time low. Simultaneously, the 15-year fixed-rate mortgage averaged just 2.63% interest and
the rate on the adjustable 5/1-year loan fell to 2.74%.1,2
Nearly four years after Freddie Mac reported those numbers, mortgage rates are back near
those levels. The 30-year FRM has averaged less than 4% interest all year, declining from a high
of 3.97% in Freddie’s January 7 Primary Mortgage Market Survey down to the vicinity of 3.5%,
in its September 15 PMMS findings.3
Are ultra-low mortgage rates here to stay? They could be. When the Federal Reserve raised
the benchmark interest rate in December 2015, analysts thought mortgages would gradually
become more expensive. That hasn’t happened. An overseas economic development helped to
keep them in check. After voters in the United Kingdom approved the Brexit in June, U.S.
investors raced to buy Treasuries. Their yields hit record lows as prices jumped, thanks to
demand.4
While the yield on the 10-year Treasury quickly rebounded, the Brexit caused Freddie Mac’s
analysts to revise their view of where rates were headed. In July, they forecast that rates on
conventional home loans would stay at 3.6% or lower for the rest of 2016, and average around
4% in 2017. Kiplinger analysts predict that the average interest rate on the 30-year FRM will be
no higher than 3.7% at the end of 2017.4,5
Mortgage rates tend to move in relation to expectations about Federal Reserve policy. You
may see rates move north appreciably when the Fed hikes, but they could fall again thereafter.
In fact, that was exactly what happened in the first half of 2016. 6
The Fed’s dot-plot forecast of near-term interest rates posits that the federal funds rate will be
under 5% for the balance of this decade. With the central bank setting those kinds of
expectations, there is an excellent chance that you may see relatively low mortgage rates for
the next few years. (Historically, interest rates on conventional mortgages have averaged
around 8%.)6,7
Raymond Dahlman may be reached at 281-724-8181, 3200 Southwest Freeway, Ste 3300, Houston, TX
77027 or [email protected].
www.dsafinancialgroup.com
Investment advisory services offered through DSA Financial Group, Inc., a registered investment
adviser.
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particular investment.
Citations.
1 - realtormag.realtor.org/daily-news/2016/07/15/mortgage-rates-stay-near-record-low [7/15/16]
2 - freddiemac.com/pmms/archive.html?year=2012 [9/19/16]
3 - freddiemac.com/pmms/archive.html?year=2016 [9/12/16]
4 - washingtonpost.com/news/where-we-live/wp/2016/07/14/mortgage-rates-remain-low-and-look-to-stay-that-way-for-a-while/ [7/14/16]
5 - kiplinger.com/article/business/T019-C000-S010-interest-rate-forecast.html [9/16/16]
6 - cnbc.com/2016/09/12/mortgage-rates-finally-break-higher-what-you-should-watch.html [9/12/16]
7 - businessinsider.com/fed-dot-plot-june-2016-2016-6 [6/15/16]