Americans have more clarity today than they did just a few weeks ago. For proof, consider that there will be a new president and administration come January. And coronavirus vaccines appear to be coming soon. These developments, in particular, could make it easier to forecast mortgage rates in the weeks ahead.
Then again, many uncertainties cloud even the brightest industry minds. Will there be another stimulus package anytime soon? What about the near-and long-term effects of pandemic shutdowns and disruptions? Who will control the Senate next year?
Despite these and other unresolved questions, the good news currently for prospective homebuyers and homeowners seeking to refinance is that there’s never been a better time to pull the trigger, thanks to refinance rates recently hitting historic lows.
“Mortgage rates hit another record low in mid-November for the thirteenth time this year and for the second time within less than a month. Investors are skeptical about the pace of economic recovery and rising COVID cases, although the latest vaccine news is positive,” says Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors. “In the meantime, jobless claims rose recently – the first increase since early October, which raises some additional concerns to investors about the pace of economic recovery.”
Where mortgage rates are headed in December
Due to these factors, Evangelou expects slightly higher rates in December, hovering around 2.9 percent for the benchmark 30-year fixed mortgage rate.
“With holiday shopping season around the corner, I expect employment to continue to improve and consumer spending to rise, especially as people will spend more time shopping around the internet, boosting e-commerce sales,” she says. “In the meantime, these ultra-low mortgage rates will continue to boost homebuying and homebuilding activity.”
Greg McBride, CFA, chief financial analyst for Bankrate, anticipates rates remaining at or near November lows for the remainder of 2020.
“While there is great excitement about vaccines becoming reality in the months ahead, the virus is currently raging more than ever and there is no sign of more stimulus,” he says. “These are immediate risks to the economic recovery and will keep mortgage rates in check through the end of the year.”
Jeremy Sopko, CEO of Nations Lending in Independence, Ohio, wouldn’t be surprised if rates hit 3.25 percent over the last five weeks of the year.
“The Fed has committed to keeping interest rates low, but with a vaccine on the horizon that’s reportedly upward of 95 percent effective, a potential second consumer stimulus, and given the fact that rates simply can’t go much lower than they already are now, I think we’ve got nowhere to go but up,” says Sopko.
Mortgage rates beyond December
Many foresee rates creeping northward after the turn of the year for various reasons.
“I expect rates to begin rising shortly after the presidential inauguration – modestly at first, maybe one-quarter of a point, but going higher overall in 2021, especially as it becomes clear that the vaccine rollout is proceeding as planned,” says Chuck Biskobing, senior closing attorney with Cook & James in Atlanta. “But a refusal of the Trump administration to acknowledge the election’s outcome could lead to market instability and rate pressure to the downside, causing mortgage rates to fall further. And if both Georgia Senate seats were to go Democrat, there could be a selloff in equities and buying of bonds, which may result in lower rates.”
Evangelou expects rates to hike no higher than 3.1 percent in the first quarter of next year.
“The main reason is the latest positive news on COVID-19 vaccines, which will likely begin to be delivered at the beginning of 2021,” she adds.
Any increase in rates in the coming year “will be tempered by the accommodative Federal Reserve and demand from overseas investors,” says McBride. “But the Fed’s willingness to let inflation run above 2 percent for a while is a wild card that someday will spur more volatility in mortgage rates. That’s a worry for some time down the road and a low-probability event in a weak economy, but something worth watching.”
Prominent real estate organizations echo these rate predictions in their latest forecasts. Fannie Mae, for instance, expects the 30-year fixed rate to settle in at 2.8 percent between now and the end of next year. The Mortgage Bankers Association, by contrast, predicts a 2.9 percent average rate in December followed by an uptick to 3.3 percent, on average, across 2021. And Freddie Mac says we can likely count on an average rate of 3 percent over the next 13 months.
Get off the fence or sit things out?
Undecided about your next mortgage loan move? You may want to act fast before your opportunity to claim a near-record low rate evaporates, provided you are in a strong financial and employment position.
“Be opportunistic. It’s never been a better time to borrow with rates where they are now,” says Sopko. “But if the cost of that is tapping out your savings, then absolutely not. Times are tough, and this is a turbulent environment, so it’s absolutely crucial to have cash on hand and keep your reserves high.”
Lock in an attractive rate now if you can, says Evangelou.
“However, for buyers who are not financially ready yet to purchase, rest assured that mortgage rates are expected to stay historically low for a long time since the Fed will allow inflation to run above 2 percent for a while without raising rates,” she says.
McBride seconds that sentiment.
“There’s not much risk of mortgage rates running away from you in coming months,” he says. “Let your financial readiness – sufficient savings, strong credit and modest debt – and your current stage of life be the primary determinants of when to purchase.”