The summer dog days are officially here. But while temperatures are likely to rise in much of the country in the coming weeks, mortgage rates are unlikely to be. This, of course, is good news for many candidate buyers and homeowners looking for a purchase loan or refi.
Mortgage rates remain near historic lows and have recently fallen to their lowest level since last winter. The 30-year fixed rate mortgage benchmark hovered around 3% at the end of July, and the 15-year fixed rate was around 2.3%.
As with the weather, things can change for better or for worse quickly. So what’s the best strategy for the mortgage seeker – fix it now or see where the interest rates are several calendar pages away? That depends on your goals, your schedule, and your financial prospects. Mortgage rate outlook for August
Interest rates fell surprisingly in July, delighting many potential borrowers. Many were also excited that the Federal Housing Finance Agency (FHFA) removed the 0.5% refinancing fee for Fannie Mae and Freddie Mac loans effective August 1st. Will these low rates keep us going for a long time?
“Mortgage rates are likely to rise in the following months. But don’t expect sharp spikes in August, ”said Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors in Washington, DC. “I expect mortgage rates to change little in August, hovering around 3% as most economic indicators begin to normalize.”
Chuck Biskobing, a senior real estate attorney at Cook & James based in Atlanta, agrees.
“I assume that the interest rates for a 30 year mortgage will remain more or less stable in the range of 3% for the next month. Given the unexpectedly high levels of unemployment claims recently, I think a major rate hike is unlikely, ”he notes. “The monthly inflation numbers are a kind of wildcard, but overall I think that interest rates will stay at the current level for the time being.”
In fact, inflation and economic growth are the variables that are most at play right now, says Greg McBride, senior financial analyst at Bankrate.
“Ironically, both have resulted in lower long-term interest rates. However, any evidence that the Federal Reserve is slowing its bond purchases this month would drive mortgage rates higher, ”added McBride. “How the debate about whether inflation is temporary or more sustainable is not yet known. But if these temporary factors lead to evidence suggesting higher inflation is embedded, interest rates will rise. “
George Raitu, senior economist for Makler.com, said in a recent statement that homebuyers “are constrained by high prices, inventory shortages and escalating inflation, which put more strain on their monthly paychecks.” At today’s price, the monthly mortgage payment for a mid-price home is $ 109 higher than it was at the same time in 2020. Prices for Fall 2021 and beyond
Industry experts predict some sharp fluctuations in mortgage rates between now and the end of the year.
Fannie Mae predicts the 30-year fixed-rate mortgage will average 3% by the end of 2021, which is close to Freddie Mac’s forecast of 3.1%. The Mortgage Bankers Association forecasts an average interest rate of 3.4% for the full year when 2021 ends.
“Slightly higher mortgage rates are the most likely outcome, especially as the persistence of inflation becomes a bigger problem. But the good news is that mortgage rates will still prevail on average in the low 3s and below 3% for those shopping in the area, ”says McBride.
If we see sustained inflation, the Fed could be forced to withdraw its asset purchase programs and interest rates could rise faster than expected, warns Biskobing.
“However, I think there’s a good chance the inflation we’ve seen is closely related to supply chain issues related to COVID shutdowns. I think these problems should resolve themselves in the next few months. Still, I think the 30-year mortgage rate will trend up and can approach 3.5% by the end of the year, ”he says.
That’s exactly the New Year’s number at which Evangelou can also imagine the interest landing.
“While jobs are falling sharply, we are also seeing many university campuses preparing to welcome students back this fall. Millions of students will soon be looking for a home, which will further increase the demand for rental apartments, ”she says. “Remember, rents are an integral part of the inflation rate and account for more than 40% of core inflation.”
The slowdown in vaccination progress and the increase in coronavirus numbers could also bring rates down a bit in the coming months.
“Concerns about rising cases of delta variants could lower both 10-year government bond yields and mortgage rates,” Evangelou said. The treasury rate and the mortgage rate closely follow each other.
On the flip side, additional congressional spending could lead to higher mortgage rates as the market raises rates before any move by the Fed.
“Congressional infrastructure spending will fuel the inflation fire, but whether it will be enough to force the Fed to act remains to be seen,” said Biskobing. Now is the time to take out a mortgage
Now is a fantastic time to take advantage of the comparatively low mortgage rates. Problem is, can your wallet hold up to the monthly payments it takes to afford the average house price?
“Many first-time buyers are priced out despite these historically low prices. While inventory is particularly limited in the single-family home price range – $ 270,500 – the affordability gap between first-time buyers and all buyers is 34%, which makes it even more difficult for them to buy a home, “says Evangelou.
Biskobing says that for many there are no easy answers.
“Buying a home now is a difficult decision. Interest rates are likely to rise in the future, so getting a cheap mortgage now makes sense. Still, home prices are at or near all-time highs and construction costs are still high, ”he says. “The question is, do you want to wait for home prices and material costs to go down, which is the risk of a higher interest mortgage, or do you want to settle down now and not worry too much about the purchase price?”
When it comes to a refi, however, experts give the green light.
“The golden refinancing option has been around for much longer than expected, but don’t be tempted by fate. Get yourself a fixed rate of less than three percent for as long as you can, ”says McBride. “A sensible reduction in mortgage payments is particularly valuable as the cost of so many other items in the household budget increases.”