It was yet again another great year to be an American consumer. The U.S. economy is expanding, the unemployment rate hit lows not seen since mid-2008, and 30-year fixed-rate mortgages fell from 4.5% at the start of the year to about 3.8% at the time of this writing.
On the surface, a 70-basis-point dip in 30-year mortgage rates may not sound like much, but this is great news for homebuyers and those possibly looking at refinancing their home from a higher rate. Based on 2012 data from Capital Economics, the average mortgage in the U.S. was $235,000. This 70-basis-point difference will save consumers $34,456 over the life of a 30-year loan, assuming only the minimum payments are made. That's huge, even if the monthly payment difference is only $96.
But where are mortgage rates headed in 2015? Industry experts have given a wide array of responses.
What to expect from mortgage rates in 2015
For example, HSH.com recently issued its annual mortgage outlook, and it anticipates that mortgage rates will "firm somewhat" in 2015. HSH's opinion on mortgage rates in 2015 is based on a number of scenarios. On one hand, HSH believes the Federal Reserve will begin raising short-term interest rates by midyear, pushing mortgage rates higher. Conversely, a strengthening U.S. economy is projected to attract foreign investments. These cash inflows have been critical in stabilizing long-term lending rates near record lows.
It's worth noting, though, that HSH can't fully factor in the effect of significant global growth issues -- like a collapse of the Russian economy or a fresh recession in Europe -- or account for what the Federal Reserve might do in response to falling oil prices. Lower prices at the pump are putting extra cash into the pockets of consumers, who may end up pumping that cash back into the U.S. economy, further strengthening it. In other words, the Fed's perceived need for an interest rate hike could come sooner or later than midyear and alter HSH's forecast for mortgage rates to firm in 2015.
The Mortgage Bankers Association has taken a slightly more aggressive stance, predicting that mortgage rates will slowly rise to 5% by the end of 2015. In its November economic and finance commentary, the MBA suggested that although the Fed is taking "considerable time" before enacting its first short-term rate hike, the Bureau of Economic Analysis' strong economic report, highlighting 3.9% GDP growth in the third quarter and 4.6% GDP growth in Q2, should lead to rate hikes by June or July 2015.
On the flip side, RealtyTrac economic research analyst Peter Miller suggests that it's possible mortgage rates could fall in 2015! Miller's thesis presumes that political instability abroad and unpredictable growth in the United States will encourage the Fed not to raise interest rates in 2015. Miller opines that many borrowers would be chased out of the market by rising lending rates. Instead, he believes that the need for liquidity will outweigh the perception that the Fed needs to boost mortgage rates in 2015.
One important thing to remember about mortgage rate predictions
In sum, there are no shortage of opinions on where mortgage rates are headed next, even if the consensus is that they'll head higher on the heels of an expected hike in short-term rates by the Fed in 2015.
The one important thing to remember here is that there's no surefire way to predict where mortgage rates will head next. U.S. and global growth conditions will ultimately determine that.
At this time last year, most economists had been predicting that the wind-down of a third round of quantitative easing, known as QE3, would lead mortgage rates to rise to 5%. QE3 was a monthly program of the Fed's whereby it purchased mortgage-backed securities and long-term U.S. Treasuries. By improving MBS market liquidity and purchasing Treasuries, the Fed's economic stimulus was designed to keep long-term lending rates down. The absence of QE3, and thus billions of dollars in monthly bond purchases, was widely expected to push bond prices lower and yields higher. The reality, however, shows that mortgage rates actually dropped below 4% instead of rising to 5%.
What I can say with some confidence heading into 2015 is that it looks like an excellent time to consider financing a new home or refinancing your mortgage. Regardless of whether rates head to 3.5% or 5%, they'll still be well below the average mortgage rate of the prior four decades. In other words, while it's important to pay attention to mortgage rates in 2015 and try to lock in the lowest rate possible, micromanaging and second-guessing whether today is the day to lock in a great rate probably isn't worth your time. Rates continue to remain historically low, and that's a gift that could keep on giving for consumers.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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