Fall Predictions: Mortgage Rates Will Remain Flat for Rest of 2014

• September 8th 2014

by UrbanTurf Staff

As fall approaches, there are a number of questions floating around about the DC area housing market. Will inventory continue to come online making it a buyer’s market? Will the slew of new apartments entering the rental market push rents down? Will mortgage rates head higher as experts have predicted?

With these questions in mind, each day this week UrbanTurf will be hearing the predictions and trends that local industry professionals believe will play out in the fall market.

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Mortgage Rates Will Remain Flat for the Rest of 2014

By Bill Slosberg, First Savings Mortgage

Last year ended with many experts forecasting an increase in mortgage rates during 2014. This was based on an expectation of rising employment and GDP numbers. However, this has not turned out to be the case. On January 2, Freddie Mac reported 4.53 percent with an average 0.8 point on a 30-year mortgage, a rate that they haven’t reached or eclipsed in 2014.

Beginning in mid-April, mortgage rates began a slow descent, spending most of the summer at around 4.125 percent with an average 0.5 point. The descent occurred despite six straight months of employment reports showing monthly gains of over 200,000 new jobs. Many experts were forecasting that the jobs number would continue to increase and the Federal Reserve would finally start raising short term rates in the spring of 2015. Then the world starting falling apart with the Mideast crisis, the Russian/Ukraine dispute and the sudden awareness by the public of the danger the United States faces from the growth of ISIS.

The September employment report showing the creation of a disappointing 142,000 new jobs was another wake up call. Interest rates declined rapidly after the news but soon a general dismissal of the accuracy of the report caused interest rates to retreat to their previous levels.

With all of this uncertainty, I predict that mortgage interest rates will remain at their current level for the remainder of the year. Despite the lack of confidence in the September employment report, big investors will wait for the October report with its expected revisions to this month’s report. Assuming that report shows the jobs number back around 200,000, big investors will want to see what comes out in November and December to confirm that August was an aberration.

Current weather forecasts are for another harsh winter which would slow the economy overall, as well as home sales and employment, I expect the 2014 fourth quarter GDP number and the 2015 first quarter GDP number to be below expectations. That should give the Fed pause, moving back any announcement of an increase in short term rates to at least the third quarter of next year. And if it is not clear that the economy is definitely back on track, I think the Fed will wait until 2016. Historically, since 1990, the Federal Reserve has been extremely reluctant to raise interest rates in the fourth quarter for fear of slowing the economy during the all-important holiday purchasing months.

It is important to note that the mortgage market tends to move several months before the Federal Reserve takes action, assuming it is pretty clear what the Fed is about to do. So I predict that homeowners and potential homeowners will experience a stable mortgage rate environment for at least the next twelve months. And when mortgage rates rise, the increase will be much smaller than usual.

This article originally published at https://dc.urbanturf.com/articles/blog/fall_market_predictions_mortgage_rates_will_remain_flat/8943.