Wither Interest Rates?


Where will interest rates go in 2019? Some heavy hitters have weighed in on this recently, so let’s take a look at a roundup of opinions from the smart people in the room.

Where are interest rates today?

According to the latest Freddie Mac Mortgage Market Survey, the average mortgage interest rate for a 30-year fixed-rate mortgage locked between November 15th and 21st was 4.81%, down slightly from previous week, with an average cost to the consumer of 0.4 points.

Please note this represents a broad sampling of loans with varying loan-to-value ratios, credit scores, property types, etc., plus it is a look backward at interest rates. Interest rates change every day and sometimes several times in a day, and rates vary be the afore-mentioned factors.  Any interest rate quote you receive may differ from this number.

For all of 2018, rates have moved up and down within a range between 4.000% and just under 5.000%, so you can see we are close to the top of the range for 2018 today.

So, where do we go from here?

Fannie Mae

Fannie Mae and Freddie Mac (Government-Sponsored Enterprises, or GSEs) are the 600-pound gorillas of the mortgage industry, since they purchase the vast majority of mortgage loans written in the United States. They do not make loans themselves, but they do set interest rates for the loan they buy, based on the yield investors demand for securities they sell to raise money.

Fannie Mae, the larger of the two GSEs, predicts interest rates will average 4.8% in 2019.

Freddie Mac

Freddie is slightly more pessimistic than Fannie, predicting average interest rates in 2019 of 5.1%, and – more notably – an average of 5.6% for 2020.

Mortgage Bankers Association

Mortgage bankers are small to large direct lenders who sell their loans ultimately to Fannie Mae, Freddie Mac, or Wall Street Hedge funds. They make loans from their own funds with the specific intent of selling them.  (Although they often service their loans, meaning you continue to make payments to them.)  If you think of a regional or national mortgage company that isn’t a bank, it’s probably a mortgage banker.

The chief economist for the MBA, Mike Fratantoni, predicts that the average interest rate for a 30-year mortgage in 2019 will be 5.1%, consistent with Freddie Mac’s projections.

These are the three big players in the mortgage industry. What does the real estate industry think?

National Association of Realtors

The National Association of Realtors (NAR) expects 2019 interest rates to average 5.3%. They expect the economy to continue to grow through 2020, driving rates up over the next two years.

National Association of Home Builders

According to Robert Dietz, the chief economist for NAHB, interest rates will rise in 2019 to 5.2%, and continue upward a tick to 5.3% in 2020. They are predicting that the economy will continue to expand in 2019, but by the end of the year begin to slow noticeably.

Where Mortgage Rates are Headed in 2019

So, what can we conclude from this survey?

The range of predicted rates is actually pretty narrow, compared to some years in the past. There seems to be broad consensus among economists about the direction of the economy in 2019. Most expect continued growth, but at a slower pace, and they expect inflation to stay in check. This will put a damper on the steady rise in rates, so the predictions that rates will rise only a hair seem about right.

The wild card in all this is deficit spending. The new tax law and budgets have exploded the deficits in the last two years, so the government is competing with other borrowers (for instance, you) for a finite amount of money to be lent. This will put upward pressure on rates, so I lean towards the higher end of the range of predictions as an average for 2019. Rates should average for the year between 5.2% and 5.3%.

However, Freddie Mac predicts that we will see a dip in rates in January and February. This may be something worth considering. Slow market activity tends to force lenders to reduce margins, driving interest rates down.

So, look for slightly lower mortgage interest rates in January and February, and then a slow, steady rise to the mid-5% range for the rest of the year.

Casey Fleming, Author, The Loan Guide: How to Get the Best Possible Mortgage (On Amazon)
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This article represents the opinions of Casey Fleming, and not necessarily those of C2 Financial Corp. This analysis was prepared with the best information available at the time it was written. Neither Casey Fleming, nor C2 Financial Corp., have any magical insider information about bond markets, real estate markets or mortgage markets that would make economic projections any more reliable than any other source. No warranty is made that the outcome will reflect the projections in this article, and neither Casey Fleming nor C2 Financial Corp. are responsible for decisions that you make regarding your own choices about your real estate or mortgage or those of your clients.

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Resources used for this article:
Freddie Mac Primary Mortgage Market Survey
Fannie Mae Housing Forecast: October 2018
Freddie Mac October Forecast
The Mortgage Reports: 2019 Mortgage Rates Forecast

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