While home prices have stayed relatively steady over the past year, mortgage rates have been rising more rapidly. There are currently many factors at play that make the mortgage interest rates uncertain in the near future. The federal reserve pausing the federal fund rate, the recent government shutdown and the trade war with China all contribute to the uncertainty moving forward. Potential home buyers should pay close attention to the mortgage rates and what the possibilities are in the future. A small bump in interest rates can severely reduce your purchasing power when trying to close on a home. So what should you expect in the future and when is the best time to lock in a rate? The Reeves Team is here to help uncover the truth.
What could make the rates to up?
There are quite a few situations in which the mortgage interest rates could increase for the rest of the year. Right now a typical mortgage rate is around 4.5% if you have excellent credit and are buying an average home. It is easy to think that because the federal reserve decided to pause rate hikes that the mortgage interest rates will stay steady as well. Unfortunately, we know that is not the case. Currently rates are about as low as they have been for the past 9 months, this is due to soft demand for mortgages in the last couple of months. However, the most recent homes report came in and surprised many with an increase in mortgage applications and home purchases. Due to the recent increase in demand its probable we will see rates increase in the short term. The stock market is also surging back after a huge dip in the month of December, this is instilling confidence in potential home buyers and could also push the rates up. It also looks like a China Trade deal may be on the horizon which would more than likely increase economic activity and put further upside pressure on mortgage rates.
What could make the rates go down?
If the economy falters in a major way the housing market would suffer. If less people have money to purchase homes there will be fewer mortgage applications. If there are fewer people applying banks will need to compete harder for the applicants and rates will drop. If the economy gets really bad and the federal reserve actually starts lowering rates instead of maintaining the current trend then we would really see mortgage rates drop through the floor. So this one is pretty straight forward, if the economy slows, mortgage rates will go down. While earning season is upon us and we are seeing slower growth from some of the biggest companies in America, they are still growing. Only time will tell if we see a recession in the United States in the near future.
What do the experts think?
Many different agencies forecast mortgage rates each year. Last year the average was around 4.8% for the end of the year and that was pretty much dead on. These agencies get it right more often than they get it wrong. So what do they see happening in 2019? They see mortgage rates rising slightly but not jumping in a major way like they did in 2018. The average of all agencies is 5.17% The National Association of Realtors predicts 5.3% so they are slightly more optimistic about the housing outlook than the consensus but still close. The most bullish prediction comes from Realtor.com who is predicting 5.5% at year end. The lowest prediction comes from Fannie Mae at 4.8%. As you can see multiple agencies who are experts in the field don’t see any significant drop off in rates from where they are presently.
What should I do if I want to purchase a home in 2019?
If you are looking to purchase a home in 2019 now is as good of a time as any to lock in a mortgage rate. Rates around 4.5% are lower than they were at the end of last year and have a better chance of going up than they do down. Even if you look at the most bearish prediction from all of our experts the rates would still be up a quarter of a point from where they are now by year end. We have a lot of year left and there are lots of possibilities but if you believe in the strength of the U.S. economy then its a good time to lock in a mortgage rate.
What do you think? Do you agree with our assessment that now is as good of a time as any to lock in an interest rate? Or do you believe we are in for a recession in the near term? Let us know in the comment section below.