Why now is your last chance for a low mortgage rate
Fluctuating mortgage interest rates may leave potential homebuyers scratching their heads. But mortgage experts tell us why mortgage rates won't be getting any lower.
The recent roller-coaster ride of fluctuating mortgage interest rates begs an important question for the new year: Is this your last chance to buy a home with a low interest rate?
If you're a potential homeowner wondering whether you should hold out for interest rates to dip to 3 percent again, you might be waiting for quite some time.
"I don't think rates will go below 4 percent [in 2014]," says Frank Percival, board president of the Washington Association of Mortgage Professionals. "I think it would be great - optimistic, wonderful, rainbows, cupid flying - to see rates go below 4 percent. Modest improvements in the economy, jobs returning, and the stock market going up usually indicate rate increases."
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Fred Kreger, former president of the California Association of Mortgage Professionals, agrees that rates aren't going to get any lower.
Previously, certain factors - like poor housing and jobs markets - created a "perfect storm" that lead to low interest rates. However, Kreger says we're no longer in the same the same home-buying environment.
Keep reading to learn about what's causing interest rates to creep up in 2014…
The Jobs Market is Improving
As the jobs market improves, interest rates go up. That's because lenders know they can charge more since more people have jobs, and thus, more money to spend.
For example, during the week of December 5th, Freddie Mac released the results of its Primary Mortgage Market Survey, which reported that the average fixed mortgage increased due, in part, to the positive report on private job growth.
And with the employment rate only expected to decrease - indicating a stronger economy - rates are predicted to increase.
In fact, “Unemployment is expected to continue on a downward path due to falling labor force participation and job growth in the range of 150,000 to 170,000 jobs per month. We expect the unemployment rate will decrease to 6.9 percent in 2014 and 6.5 in 2015,” according to Jay Brinkmann, the Mortgage Bankers Association's (MBA) chief economist.
In correlation to the improving jobs market, the MBA predicts that mortgage rates will jump above 5 percent in 2014 and continue to increase to 5.5 percent by the end of 2015.
Quantitative Easing (QE3) will End
The MBA also predicts that the Fed will phase out Quantitative Easing (QE3) in September 2014 and discontinue buying bonds - a tactic to keep interest rates low and encourage home-buying during tough economic times.
And the MBA's prediction may not be far off, as the Chairman of the Board of Governors of the Federal Reserve system, Ben Bernanke, held a press conference on December 18th and announced plans to ease the central bank's controversial stimulus program.
Starting in January, the Fed says it will modestly reduce its purchase of mortgage-backed securities to $35 billion a month, from $40 billion a month.
The Fed will continue to monitor the labor market during the upcoming months and will continue to reduce or increase their bond-buying purchases accordingly.
However, if the unemployment rate continues to decrease, it's likely that the Fed will continue its stimulus taper and as a result, interest rates will go up.
The Bottom Line
Overall, Aaron Vantrojen, state president of the Arizona Association of Mortgage Professionals, says that mortgage interest rates have been fairly stable, but are definitely climbing.
"I think they quite likely will be in the 5 [percent range], if not higher, in 2014."
He adds that people's current perception is that anything over 3 percent is high, but their expectations should be lowered, especially given the fact that interest rates are still relatively low by historical standards.
