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The spookiest season of the year could also bring more weirdness to mortgage rates and an uncertain — if not scary — period for borrowers.
That’s because rates have leaped significantly in recent weeks. As of Sept. 28, the 30-year fixed was on track to 7 percent, while the 15-year fixed was ticking toward 6 percent. Even the 5/1 adjustable-rate mortgage (ARM) has been looking less attractive, up a whopping 36 basis points in just the last week to over 5 percent.
Will the rate landscape remain frightening this month, or will there be more treats than tricks for borrowers? We asked the experts for their take.
‘A unique time’
If you’re a borrower, you can mostly expect much of the same pricier financing this month. Inflation is still weighing on the economy — price gains in August remained at a 40-year high — forcing the Federal Reserve to keep up its own pressure on rates. With five hikes under its belt so far this year, the central bank is poised to increase rates yet again in November and December.
Unless inflation and Fed policy changes meaningfully, for mortgage rates, “the bias would be to the upside,” says Greg McBride, chief financial analyst for Bankrate.
“Interest rates are going up at a faster pace than most of us have ever seen in our adult lives, and with the amount of global debt out there, this makes for a troublesome combination,” says McBride. “Volatility and uncertainty are to be expected, but we’re getting to the point where it pays to expect the unexpected. This is a unique time.”
For October, McBride anticipates the 30-year fixed-rate mortgage to average in the range of 6.5 percent to 6.8 percent, and the 15-year fixed to average 5.5 percent to 5.75 percent.
“Rates will continue to rise, as we’ve seen little to no change in the recent rate of inflation,” says Dennis Shirshikov, head of content for Awning, a portal for single-family investment properties. For October, Shirshikov expects the 30-year to average right under 7 percent (6.95 percent) and the 15-year to average 6.5 percent.
Along with the Fed’s response to inflation, fixed-rate mortgages react to movement in the 10-year Treasury yield, a broad economic indicator that has climbed steadily as of late.
“Over the past month, rates have been fairly predictable, as the 10-year U.S. Treasury rate continues to rise,” says Kyle E. Scheiner, partner with New York-based Romer Debbas, in the Residential Banking division. “I wouldn’t expect surprises for the remainder of the third quarter.”
Analysts recently surveyed by Bankrate predict the 10-year yield to stay relatively flat in the coming year. Historically, mortgage rates track about 2 percent higher than the yield, but that has widened in recent months.
“For the remainder of the year, I expect mortgage rates to remain closer to 6 percent in light of the Fed’s recent rhetoric and investors’ concerns about pre-payments and the Fed’s balance sheet reductions, which are keeping mortgage spreads high,” says Selma Hepp, deputy chief economist for CoreLogic.
‘Persistent fears for the economy’
In the housing market, builder confidence remains sour and home sales soft this year. While the stunning growth in prices has started to moderate, the amount of listings is still insufficient.
“The sectors of the economy that are the most interest rate-sensitive are certainly showing the effects of our tightening, and of course the obvious example is housing, where you see declining activity of all different kinds and house price increases moving down,” Fed Chair Jerome Powell said after the policymaker’s latest meeting.
Various other forces might push rates one way or the other in the weeks ahead, however, including ongoing geopolitical instability with the Ukraine conflict with Russia, and now unrest in Iran.
For now, though, the biggest influencers remain with the economy and the Fed.
“Three factors mainly affect today’s market: expectations on inflation, economic growth and the Fed’s policy,” says Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors. “Inflation and higher interest rates typically move up yields as investors demand a higher return. Nevertheless, concerns about economic growth can put a damper on the pace of the increase…the bond market shows signs that there are persistent fears for the economy.”
The Fed could raise rates as much as 100 basis points at its next meeting in November, says Scheiner, but “will need to weigh that move against depressing reports by homebuilders and consistent lobbying from the National Association of Realtors warning that additional rate hikes will essentially kill off the entire housing market.
“At some point, I would think the executive branch needs to step in and consider reintroducing programs like HARP to re-encourage homebuying,” says Scheiner.
‘Time is on your side’
You might be feeling some urgency if you’re considering buying a home or otherwise borrowing a mortgage in October — and that might or might not be justified.
The housing market will slow further, so even if prices don’t change you will at least have the opportunity to do appropriate due diligence before making the biggest purchase of your life. But don’t be in a hurry.
— Greg McBrideChief financial analyst, Bankrate
“Time is on your side,” says McBride. “The housing market will slow further, so even if prices don’t change you will at least have the opportunity to do appropriate due diligence before making the biggest purchase of your life. But don’t be in a hurry.”
“This is the time to purchase for homebuyers,” says Shirshikov. “Rates aren’t getting any lower, and the housing market is not going to collapse.”
For current homeowners, unless you got your mortgage more than 10 years ago, you’re likely better off waiting things out than trying to refinance right now. Instead, think about a home equity line of credit (HELOC) or home equity loan.
“If you need cash, pulling it out of your home via a home equity loan or HELOC would still be the cheapest way, even with rates today,” says Scheiner, adding “if you have an ARM that’s about to adjust, maybe it’s cheaper to allow it to adjust and keep taking it month by month before you decide to pull the trigger on a refinance.”