As the real estate market prepares for its peak buying season, experts are still analyzing the future of the near-historic interest rates seen through the fourth quarter of 2014 and first quarter of 2015. The predicted rise of interest rates in fall 2014 when the Federal Reserve stopped buying Treasury bonds sparked a sense of urgency to take advantage of low rates, but mortgage rates are still near those historic lows.
Predictions at a Glance
The general consensus: interest rates will rise but slowly.
Freddie Mac forecast for 30-year mortgage rates through Dec. 2015
- The Mortgage Bankers Association expects to see 5% averages on 30-year fixed mortgages by the end of 2015.
- Freddie Mac forecasts an average rate of 5%.
- National Association of Realtors Chief Economist Lawrence Yun predicts a gradually rising rate trend “with the 30-year fixed rate averaging…5.5 percent in 2015.”
- The Home Buying Institute’s projection agrees with the 5% outlook of Freddie Mac and the MBA.
- Economist Dr. Bill Conerly’s prediction is the highest due to his analysis of stronger economic growth and tightening of Fed funds. He believes mortgage interest rates will hit 6% by year’s end.
The Fed to Possibly Increase Rates Mid-Year
The Federal Reserve, aka “the Fed”, reacts to economic events caused by inflation, recession and economic growth to stabilize prices. Rates are swayed by the Fed adjusting the supply of money circulating within the economy; more money supply, lower interest rates.
According to monetary policy statement made on March 18, the Fed is no longer committed to being “patient” before it starts raising short-term rates, meaning an active consideration for a rate hike in their next two meetings mid-June.
Along with a decrease in unemployment projection, Fed policymakers have noted a change in predictions for where interest rates would go in the remainder of 2015 and 2016. In December, the median policymaker thought short-term interest rates would rise 100 basis points this year and 125-150 basis points in 2016. Currently the median prediction suggests rate hikes of only 50 bp in 2015 and 125 bp next year.
Even if the Fed does tighten its monetary policy and a mortgage rate increase follows, Freddie Mac’s Chief Economist Frank Nothaft doesn’t expect a dramatic spike.
Mortgage rates are still near historic lows this spring, keeping homeownership an affordable reality for potential homebuyers. For information on current interest rates, contact one of our mortgage bankers. If you are interested in more information on home buying and financing, in general, download our free Mortgage 101 Handbook for a go-to guide on all things involving homebuying.
The above predictions are gathered from economic professionals and do not represent Compass Mortgage’s projection for interest rates in 2015.