Ever try predicting the outcome of a closely matched sporting event, the weather a week out, or a presidential election? It’s not easy – there are a lot of moving parts and sudden variables that can come into play.
The same is true of mortgage interest rates: Trying to prognosticate where rates will be next year is tricky, as several factors can drive them higher or lower. Yet many homeowners and house hunters look for guidance at this time of year.
Should they lock in at a low rate now on a purchase or refinance? Or should they wait for the calendar year to change and trust that rates will be even lower in 2020?
For help with this answer, we consulted with the experts, including leading housing organizations and real estate professionals. Most agree: Next year, rates on the 30-year fixed-rate mortgage should remain near today’s historically low levels if not slightly higher.
For example, the two big government-sponsored enterprises, Freddie Mac and Fannie Mae, each expect rates to average around 3.6% to 3.7% throughout 2020. That’s not much higher than what you can lock in at the time of this writing.
In its most recently published mortgage forecast, the Mortgage Bankers Association – a highly respected national group that represents the real estate finance industry – anticipated an average rate of 3.9% next year. That’s a slightly higher number, but still an enticingly low rate. (Consider that the 30-year fixed-rate began 2019 at around 4.51%.)
Meanwhile, the National Association of Realtors forecasts a 3.6% average rate for 2020 in its latest economic outlook report.
Ask Daryl Fairweather, chief economist for Redfin in Seattle, and she’ll tell you she believes rates will remain around 3.6% for the foreseeable future – assuming continued economic growth into 2020.
“Interest rates are quite low right now, hovering around 3.6% for the 30-year fixed-rate mortgage. But they can move every week due to the forces of supply and demand,” she said.
“When lenders have an easier time finding purchasers for mortgages and mortgage-backed securities, interest rates fall. When there are more borrowers wanting mortgages, interest rates tend to rise.”
Additionally, economic factors like the risk of recession, the strength of the housing market, and the performance of the stock and bond markets “all impact the supply and demand for mortgages, too,” Fairweather added.
Preetam Purohit, a capital markets trader at Middletown, Rhode Island-based Embrace Home Loans, foresees rates as low as 3.75% but as high as 4.5% next year.
“It will depend on how the current trade situation between the U.S., China and other countries shakes out,” he says. “If the trade conflict worsens, it will push the global economy into a mild recession, resulting in multiple interest rate cuts by the Federal Reserve.
“Also, policy changes among the world’s central banks, geopolitical issues like Brexit, and the Syrian conflict could all play a role, too. These events can, in turn, lead to lower or higher mortgage rates.”
Which begs the original question: Pull the trigger now on a low rate or wait things out for a while?
“If you’re not looking to sell your home soon, try to refinance now while rates are low rather than hoping for even greater rate declines,” suggested Steven Jon Kaplan, CEO of True Contrarian Investments LLC in Kearny, New Jersey.
“It is very unlikely that mortgage rates will be significantly lower than they are right now unless we go into recession.”
As for home shoppers, you may want to act soon if you can afford to buy now.
“Rates have moved significantly lower in the past year,” noted Purohit.
“We recommend borrowers with long-term plans of staying in their homes to lock in a low rate now because there’s no telling how long these low rates will last.”