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A brutal winter is winding down, and spring homebuying season is approaching. How are mortgage rates shaping up for this month? After steep increases in February, housing economists also see rates ticking higher in the weeks ahead.
One expert who isn’t optimistic about reduced rates in the short term is Lawrence Yun, chief economist for the National Association of Realtors in Washington, D.C.
“Mortgage rates will be higher in March. The prospect for economic recovery is strengthening and thereby lessening the hold on safe U.S. Treasury yields,” he says. “In addition, more stimulus and the accompanying higher national debt will place upward pressure on inflation. Consequently, long-term interest rates, including the benchmark 30-year fixed rate, will be rising.”
Yun envisions that benchmark rate averaging 3 percent in March before creeping up to 3.2 percent by summer and hitting 3.5 percent a year from now.
Daryl Fairweather, chief economist for Seattle-based Redfin, concurs with that forecast.
“Mortgage rates have started to rise in the last few weeks. They will likely stay just above 3 percent through the end of March,” she predicts.
Mortgage rates are expected to inch higher on increased optimism about the economic recovery as well as continued concern about inflation in the near future.
“There is a greater likelihood of rates heading higher rather than lower as vaccination progresses and the economy recovers, assuming additional stimulus gets passed in Congress,” says Greg McBride, CFA, chief financial analyst for Bankrate.
Peering past the next 31 days
The good news, according to Fairweather, is that rates should hover in the low 3 percent range for the rest of 2021. Put that in historical perspective, and it’s easy to conclude that this is still a desirable outcome for borrowers. The bad news?
“It seems like the days of record-low rates are over for now, although it’s hard to know exactly what will happen for the rest of the year,” she says. “But I don’t think rates will grow past what they were pre-pandemic – 3.5 percent to 4 percent – anytime soon, if at all. The Fed has committed to keeping its target rate for federal funds at zero, and it will probably stay that way for a long time as part of their plan to maintain a healthy economic recovery.”
Curious what leading industry organizations prognosticate? In its most recent mortgage finance forecast, the Mortgage Bankers Association foresees the 30-year fixed mortgage rate averaging 3.4 percent across 2021. By contrast, Fannie Mae and Freddie Mac, respectively, expect rate averages of 2.8 percent and 2.9 percent.
“Hopscotch” is a word McBride uses to describe the path rates will likely take back and forth for the remainder of 2021.
“Mortgage rates will be volatile throughout the year, moving lower on signs of economic weakness and heading higher on signs of vaccination progress and a return to normalcy,” says McBride.
He pegs the end-of-the-year average rate at a borrower-friendly 3.1 percent. McBride believes this is a strange economic period to analyze – a time where “bad news is good news” when it comes to the economy because it heralds more, rather than less, stimulus.
“Delays in getting additional stimulus money passed, a smaller-than-expected stimulus bill, or vaccines that prove ineffective against the latest strains of COVID represent possible catalysts for rates to retrace record lows – so keep an eye on those wild cards,” says McBride.
Yun seconds those sentiments.
“Mutation of the virus that continues to lead to unexpected jumps in hospitalization and a partial shutdown of the economy will then result in more active quantitative easing by the Fed of buying mortgage-backed securities – causing rates to slide under 3 percent,” says Yun.
But even if we see stimulus progress, vaccine success and stronger economic growth, investors will remain worried about inflation.
“Mortgage rates will likely go up as investors demand a higher yield on their investments,” Fairweather adds.
Your best strategy
Put things in proper context: Mortgage rates aren’t anticipated to fall further than they are right now. So why postpone if you can afford to buy or refinance now?
“If you have a tight monthly budget and are concerned about keeping your payments low, it might make sense to act now,” Fairweather says. “But if you’re a buyer who has been discouraged by reports of bidding wars and overall competition in the market, rising rates could actually help bring some relief. That’s because even small upticks in the cost of borrowing tend to decrease the number of people looking to purchase.”
Another reason to sit things out for a stretch? More inventory is expected to hit the market this spring.
“Buyers who wait a little longer could have more choices and face less competition in their home search,” she adds.
If, on the other hand, you’re eager to refinance, there’s little reason not to pull the trigger if you can lower your interest rate and afford the closing costs, suggests McBride.