Mortgage Interest Rates To Rise Slower Than Expected

Federal Reserve Chairwoman Janet Yellen announced last week that while the Fed still plans to raise interest rates before the end of the year, the increase will be slower than officials had previously predicted. The announcement comes on the heels of slower economic growth than predicted. Of course, the announcement is completely in line with our 2015 Real Estate Predictions that we announced at the beginning of the year.

Recap Of Mortgage Interest Rates In 2015

In 2014, the average mortgage interest rate was 3.875%, according to Freddie Mac. At the beginning of 2015, many experts, such as the Mortgage Banker’s Association and Freddie Mac’s Chief Economist Frank Nofthaft, predicted that mortgage interest rates would rise to as high as 5.0% by the end of 2015. On January 6, we posted this article explaining why we believed those predictions were probably inaccurate because they were based heavily on the housing market rather than more general economic indicators, such as the unemployment rate.

By the end of January, mortgage rates had done the opposite of what experts predicted – they had dropped. As we discussed in this article, rates had dropped to as low as 3.66%. At that time, the “experts” began to change their tune regarding expectations for the end of the year.

By the beginning of February, the Fed confirmed it had no plans to increase interest rates before June. As we discussed in this article, the Fed confirmed it would remain patient and would not raise interest rates until the economy showed more promising signs of sustained growth.

Fed’s Recent Announcement Regarding Mortgage Interest Rates

This past Wednesday, the Fed once again announced that it expected the rise in mortgage interest rates to be slower than many experts predicted. An article published by the NY Times explained that the Fed’s annoucement was based on slower economic growth than previously expected. In fact, much of the discussion was based on the expected unemployment rate by the end of the year – while previous expectations were that the unemployment rate would be at between 5.0 and 5.2% by the end of the year, those expectations have changed to 5.2 to 5.3%. Given the current unemployment rate of about 5.5%, it now seems that 5.0% by the end of the year will be impossible.

What This Means For Home Buyers

This means that buyers who have been rushing their home search amid concerns that mortgage interest rates will rise can take a breath of fresh air. With rates currently hovering around 4.0%, it’s unlikely that rates will break 4.5% by the end of the year. As a result, the era of “cheap” money will continue.

If you would like to further discuss how Esquire Real Estate Brokerage, Inc. can help you in the Los Angeles real estate market, feel free to give us a call at 213-973-9439 or send us an email at info@esquirereb.com.