Mortgage rate trends and forecasts for May 2021

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  • Mortgage rates fell below 3% in April for the first time since February
  • You still have a chance to lock in a low rate with a refinance, as some experts believe rates could be relatively stable this month.
  • Buyers looking to take advantage of low mortgage rates still face low inventory and rising prices.

Experts believe mortgage rates will hover around 3% this month, extending the window for borrowers to lock in a low rate.

In April, average rates reversed two straight months of increases and fell below 3% for the first time since February. But this decline is a normal fluctuation rather than a long-term trend, according to the experts we spoke to. Mortgage rates are expected to rise further in the long term, but interest rates could hit pre-pandemic levels next year.

This year, we’ve seen rates climb to 3.18%, before dropping back to 2.97%, according to the Freddie Mac Weekly Rate Survey. And in the coming weeks, it’s likely we’ll see mortgage and refinance rates move in a similar range, experts say. So we won’t see a new record high, but rates are also unlikely to skyrocket.

Here’s where experts expect mortgage rates to move in May 2021.

Vivek Sah, Director of the Lied Center for Real Estate at the University of Nevada, Las Vegas

Vivek Sah, Director of the Lied Center for Real Estate at the University of Nevada, Las Vegas
Vivek Sah

Sah sees mortgage rates staying where they are for months to come. “I think they’re probably going to stay the same… around 3% for at least the next two quarters,” Sah says. But later this year or early next year, we could see GDP growth and inflationary pressures begin to gradually increase in mortgage rates.

While rising rates are likely in our future, they should remain favorable for borrowers. Sah could see mortgage rates hit 3.5% in a year, but that “… is relatively low historically”. So even though we see a big increase from record lows in 2020, interest rates shouldn’t impact too many people ‘s decision to buy a home.

Daryl Fairweather, Chief Economist at Redfin

Daryl fairweather

According to Fairweather, if shortages of products like lumber and microchips cause prices to rise, it “could lead to headline inflation, and if that happens, mortgage rates will rise.” However, unless something very unexpected happens, don’t expect rates to skyrocket. “Everyone is waiting [inflation] happen. So some of that may already be built into the current mortgage rate situation, ”says Fairweather.

What happens with inflation will also depend on the regularity of the reopening of the economy. “If employers are slow to find workers… they will have to raise wages, which will lead to inflation,” she said. “But if job vacancies are filled quickly and there is no need to raise wages, we don’t expect there to be so much inflation.” So we could see inflation and mortgage rates going both ways.

Joel Kan, Mortgage Bankers Association economist

Joel kan

Even with fluctuations from week to week, Kan still expects mortgage rates to rise by the end of the year. “The US economy has a lot of potential… we still have a lot of the economy, in some ways, that hasn’t reopened yet,” Kan says. With jobs returning in hardest hit sectors like leisure and hospitality, this prospect of growth is one of the factors that will push rates up.

A growing economy is expected to increase demand for goods and services, leading to higher prices. And inflation can also be spurred by “complications from supply chain disruptions and challenges that we’ve already seen arise in many industries,” Kan says. He cites home builders, who have tried to meet demand for housing, but have faced shortages of wood and other supplies.

Ken H. Johnson, Real Estate Economist at Florida Atlantic University

Ken H. Johnson, Real Estate Economist at Florida Atlantic University
Ken H. Johnson

Johnson expects mortgage rates to remain relatively stable in May, with only normal fluctuations. “I don’t see them going down any more, but I don’t see any immediate pressure points to raise rates,” he said. While the stronger economy will put upward pressure on rates, it will happen over time rather than this month.

And when that happens, you can expect any increase in mortgage rates to be gradual. “If I’m a home buyer, that’s good news,” Johnson says. “He gives [homebuyers] a little bigger window to make a decision because… rates won’t go up tomorrow. In the long term, he sees 30-year mortgage rates hovering around 3%.

Cris deRitis, Deputy Chief Economist at Moody’s Analytics

Expect rates to rise in the long run, says deRitis. Over the past month, the 30-year average mortgage rate has remained between 2.97% and 3.18%, according to Freddie Mac. “I expect it to move within that range for a while, but with an uptrend,” says deRitis. So we might not see huge rate swings in May, but by the end of the year, or early next year, mortgage rates could reach pre-pandemic levels.

DeRitis says 10-year Treasury bill rates can be a strong indicator of mortgage rate developments. If Treasury bill rates rise, mortgage rates should rise. As the economy opens up and continues to grow, rates are expected to push them higher.

What does this mean for your plans to buy or refinance a home in May?

Even though we see a slight increase in current mortgage rates in May, they are very likely to be quite favorable from a historical perspective.

In 2020, we saw an all-time low for mortgage rates after the next. This year, rates have increased, but they are still about 0.5% lower than they were a year ago. So if you haven’t refinanced in the past year, your window of opportunity is still open, especially if you can reduce your current interest rate by 1% or more.

Refinancing is not free: the initial fees, or closing costs, are typically 3% to 6% of the loan balance. So you should consider how much you are saving each month and how long you will hold on to your new mortgage to determine if refinancing is a good idea.

For example, if you can reduce your mortgage payment by $ 300 per month and have paid $ 11,000 in closing costs, then it would take 37 months (about three years) to break even. Calculating your breakeven point can help you determine if you’ll hold on to your loan long enough that the savings outweigh the cost.

For homebuyers, low mortgage rates and home inventories have created a seller’s market with double-digit increases in home prices. As we enter the peak shopping season, things don’t seem to be improving for shoppers. So potential homeowners can still get a great rate, but the biggest hurdle is still accepting your offer.

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