The smart money says: Mortgage
rates ARE going up this year —
possibly quite a bit
Average 30-year fixed mortgage rates are running just a tad above their 3.31% all-time lows, but economists predict 2015 will be the last hurrah for sub-4% home loans — and possibly even for sub-5% ones, too.
“Mortgage rates will be rising” this year, economist Lawrence Yun of the National Association of Realtors recently told TheStreet TV, projecting that 30-year fixed rates will average 5.4% by year’s end, from a bit above 3.5% today.
Yun and others expect rates to rise as a strengthening economy prompts the Federal Reserve to tighten credit for the first time since the central bank slashed its key Federal Funds rate to essentially zero percent in December 2008.
The Federal Reserve has signaled that it plans to raise the Fed Funds rate around mid-2015, and while the Fed doesn’t control home-loan rates directly, mortgage lenders will likely mimic what the central bank does.
Many experts believe that mortgage rates — which have historically averaged around 7.5% but fell to as low as 3.31% in late 2012 — will begin rising this spring as credit markets get a jump on the Fed. “We don’t know exactly whether it’s going to be in March or April, but [lenders] will begin taking cues” from the Fed, Yun said.
Economist Jonathan Smoke of Realtor.com predicts benchmark mortgage rates will start increasing in around three months and end 2015 at 5%, their highest average in some four years.
He noted in a recent online chat that the last time the Fed began a credit-tightening cycle in 2004, mortgage rates began rising in April even though the central bank didn’t actually boost the Fed Funds rate until June. “The best guess from my perspective is that [this time], we’ll start to see mortgage rates move up as early as April,” Smoke said.
But Zillow.com economist Stan Humphries thinks consumers have a little longer to lock in today’s ultra-low rates. He expects average interest rates for a 30-year fixed-rate mortgage to remain “at or near current levels” throughout 2015’s first half, then begin rising and hit 4.8% by year’s end.
Of course, many economists made similar predictions in 2014, only to see mortgage rates drop at various points during the year as the U.S. or global economies appeared to stall.
But Realtor.com’s Smoke noted in his online chat that while the Fed was vague last year about its plans, it’s now indicating clearly that the Fed Funds rate — and, by extension, mortgage interest rates — are heading higher. “The scenario we’ve facing now for 2015 is literally a question of when, not if, mortgage rates are going up,” he said.