Spring can be full of surprises, and this season has brought a twist: lower mortgage rates. After rising steadily for the previous two months, rates fell throughout April.
A lot of people didn’t see that one coming. So experts took a closer look at the upcoming funding climate and determined whether the earlier rate forecast for 2021 should be reassessed. Their consensus? Don’t expect rates to fall further in the coming months.
The May Rate Outlook
At the end of April, the 30-year fixed-rate benchmark mortgage was on average 3.20%, according to Bankrate’s national survey of lenders – its lowest rating since early March. Freddie Mac says rates fell below 3% in April (unlike Bankrate, Freddie Mac does not include origin points in his figure). But Nadia Evangelou, senior economist and forecasting director for the National Association of Realtors, suggests the rate cut could be an anomaly.
âI didn’t expect to see rates drop below 3%. But those mortgage rates of around 2% probably won’t last long, âshe says. “It is true that over the past three weeks the 10-year Treasury yield and mortgage rates have fallen, even though the economy is growing faster.”
Meanwhile, investors are recalibrating their expectations for rising inflation.
âInvestors are realizing that inflation will not be a problem in 2021 and will not cause the Fed to reassess its approach to low rates anytime soon,â Evangelou says.
Evangelou believes the economy is at an inflection point, with strong hiring growth expected to come thanks to a rate hike of a different kind: increased vaccinations and political support. For these and other reasons, she predicts the 30-year mortgage rate will rise in May, ending at around 3.1% before the schedule moves to June.
Bankrate’s chief financial analyst Greg McBride, CFA, agrees with this theory.
“Much of what we’ve seen in terms of better economic data and higher inflation has already been factored in, as evidenced by the stabilization of rates and even the pullback in the face of very strong economic numbers,” McBride says. âEven if mortgage rates resume their upward movement in the coming weeks, it will be much more modest than what we saw in the first months of this year.
Daryl Fairweather, chief economist at Seattle-based Redfin, is optimistic the economy will rebound to more normal levels sooner than expected, especially with the rapidly expanding vaccine rollout and administration Biden announcing new recovery spending plans.
âBut there are many factors that could change these trajectories. And while mortgage rates falling below 3 percent are good news for many buyers, I don’t think that means we’ll see record high rates in the long run, âsays Fairweather.
Speculations for summer and beyond
McBride envisions mortgage rates hovering between 3% and 3.5% for most of 2021.
âAs long as economic expectations come true – which means a strong rebound and rising inflation – the risk will be on the rise,â he adds. “But with a much slower pace of growth expected in 2022, that could trigger a pullback at some point in the second half of this year.”
The prospect of inflation is of particular concern to Fairweather.
âThis is especially true with recent price increases and shortages in products like lumber. Time will tell if we will start to see more shortages of essentials, which could lead to higher inflation, âshe said. âAnother thing to watch out for is the state of foreign markets. If our economy recovers completely but other countries are still struggling to fight the virus and get back to normalcy, I think we’ll see global investors putting their money into relatively safe US assets, which could lowered rates.
Yet conventional wisdom is that a growing US economy usually comes with rising rates.
âMortgage rates are more likely to rise than fall for the remainder of 2021,â says Evangelou. âThe economy is growing faster than expected as Americans get vaccinated and start traveling again. As consumers spend more, prices rise, putting upward pressure on tariffs. “
It predicts mortgage rates to average 3.5% by the end of the year.
This is close to the forecasts of other closely watched real estate organizations. Fannie Mae and Freddie mac forecast the 30-year fixed mortgage rate to average 3.2% in 2021. The Mortgage Bankers Association expects rates to reach 3.7% by the end of the year .
Good practices for borrowers
If you are in a good position to buy a home or refinance soon – which means you qualify for a loan, can afford the monthly housing costs, and have a reliable source of stable income – “carpe diem” May be your best strategy.
âIf you’re ready, you should go ahead and lock in your rate now. The current mortgage rates may be the lowest you can get, âsays Evangelou. “However, if you are not financially prepared to buy or refinance, you shouldn’t be in a hurry or feel stressed.”
Even if rates begin to drift higher, they are expected to remain favorable and historically low over the next two years.
âMortgage rates are even lower today than they were at any time before the summer of last year,â says McBride. âIn other words, if someone had offered you today’s rate around the same time last year, you would have jumped everywhere. The bottom line is that rates are still very low, and even if they increase further, they will remain among the lowest ever seen before the pandemic. “
Fairweather is particularly bullish on refinancing sooner or later.
âIf spending all that time at home over the past year hasn’t made you want to move, I think you’ve found a sitter. Now is a reasonable time to commit and lock in a lower rate, which could put more money in your pocket for home upgrades, errands, savings, or fun experiences now that the world is starting to turn. open a little more â. said Fairweather. “Those who wait for rates to drop even lower are likely to be disappointed.”
It helps to put things in perspective with a bit of context: consider that while rates rise closer to 4% in the months that follow, it remains well below the historic average fixed mortgage rate of 8%, note Evangelou.
When you’re ready to act, don’t settle for the first mortgage deal you see. Shop around and get quotes from at least three different lenders.
âNot everyone offers the same rate or charges the same fees,â says McBride. “The comparison can save you thousands of dollars.”