Mortgage rates trend in 2014 was one of the biggest surprises for the housing industry – a pleasant surprise! Rates ended near an 18 month low, with 30 Year Fixed rates averaging just over 3.80%.
At the beginning of the year, all the economists and industry associations had forecasted a rate in the range of 5% by the end of 2014. No one doubted the numbers, especially as we started the year at 30 Year Fixed rates over 4.5%. There were reasons. The economy was expected to grow quickly, Fed was to stop buying mortgage bonds, and the Europe debt problems were supposed to get better.
According to Freddie Mac Primary Mortgage Market Survey, 30 Year Fixed rated ended around 3.80%, while 15 Year Fixed ended at 3.10%. Adjustable rate mortgage (ARM) though, remained mostly flat through the year. 5 year ARM starting the year at 3.05% and ending the year, almost at the same level.
What caused the rates to decline?
Several unforeseen factors contributed to rate decline during the year. Remember bad news for economy is usually good news for rates and vice-a-versa. Political news like war in Iraq, Ukraine jolted the markets. Then came the health crisis of Ebola. On the economic fronts, China and India grew much slower and Europe’s debt problems kept erupting every few months.
All these global factors combined with Fed not increasing its funding rate helped the mortgage backed securities (MBS), which in turn kept the mortgage rates lower. Even the decision by the Fed to stop buying mortgage bonds didn’t have much negative impact.
Where do we go from here?
The third quarter GDP growth of 5%, highest in over a decade is definitely pointing to a stronger economic growth. In the fourth quarter, we usually see more hiring and higher consumer spending. If the industry is able to get close to numbers like these in spring and summer, we can definitely expect the rates to go up as we get into peak home buying season. Fed too will most likely increase its funding rate if it sees constant growth like that every quarter.
While the immediate risk to mortgage rate hike seems minimal, a 50-75 bps rate increase by the end of the year can’t be ruled out. These projections are based on fundamentals existing now; but as we saw with rates in 2014, there could always be instances and events that is virtually impossible for most of us to know or predict.
What it means for you?
Take advantage of these super-low rates till they are available. Speculating about where the rates will be in future, doesn’t help anyone. If you own a home already and got a loan late last year or earlier this year, it could be a good time to look into refinancing options.
And if you were thinking of buying a home, consider doing so in next 1-2 months when you have less competition from other buyers and the rates are still low.
Amazon.com Best-selling author, Shashank Shekhar (NMLS 8176) is a mortgage lender with Arcus Lending, offering loans for home purchase and refinance. Shashank has been featured as a mortgage expert on Yahoo! News, ABC, CBS, NBC and FOX. He has been named "Top 40 under 40" most influential mortgage professionals in the country.
