The outlook for mortgage rates in 2015

Fannie Mae this week cut its forecast for the average mortgage rate for 2015 from 4.5% to 4.3%, which compares with the current national average of around 4.1%.

It is worth bearing in mind that a year ago the Mortgage Bankers Association (MBA) forecast that the 30 year mortgage rate would reach 5.1% by the end of this year.

That, of course is one of the biggest problem with forecasts – they have to be made about the future, which contains so much uncertainty. If only we could just stick to making “forecasts” about the past, life would be so much easier!

But the MBA has come back with new forecasts for the next two years. I can’t find the text of their forecast so am publishing their chart. My read is that they are expecting the mortgage rate to rise steadily for the next two years, reaching over 5% by the end of 2015 and not far short of 6% by the end of 2015.

Source: Mortgage Bankers Association

Source: Mortgage Bankers Association

The challenge for the US economy remains low or no growth in Europe and slowing growth (to “only” 7% or so) in China. And while the headline unemployment rate has fallen below 6%, 6% just isn’t what it used to be because of the large number of people still looking for full-time jobs or who have given up looking.

The good news is that China has just cut interest rates and Europe actually started buying asset-backed securities in a sort of Quantative Easing-lite program. These moves followed last week’s decision by Japan to step up its QE program.

In a recent post I wrote: “In an era of low interest rates I still find it interesting that real estate in general remains an asset class that has not experienced a significant increase.
I look at these possible futures:
1. The pessimists are right and all the years of low interest rates will result in a sharp rise in inflation. Answer: buy real estate as a hedge against inflation.
2. The optimists are right and the US, at least, will see growth of 2 1/2 – 3% in GDP, enough to keep unemployment at a reasonable level without driving up interest rates. Answer: buy real estate, but expect no more than modest annual price increases.
3. The pessimists are also right in that the years of excess have still not been drained from the system (especially in Europe) and that we face deflation as we go through a long period of adjustment. Answer: lobby for Ben Bernanke to be appointed head of the European Central Bank and for the Germans to forget the Weimar Republic’s hyper-inflation.(In 1919, one loaf of bread cost 1 mark; by 1923, the same loaf of bread cost 100 billion marks.)”

European Central Bank President Mario Draghi may not be Ben Bernanke, but then BB didn’t have to deal with a 24 member Governing  Council with representatives from Greece to Germany.

Those of us of a certain age remember only too well the constant fight against the perils of inflation. Now, the battle has reversed and it is the perils of deflation we are fighting. That battle has just been renewed in Europe and Japan.

Risking a forecast about the future, my money is on Fannie Mae’s mortgage rate forecast rather than the MBA’s.

Here are links to a couple of earlier posts on mortgage rates:
What happened to 5%?
Are mortgage rates really going to jump this year?

If you – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 617.834.8205 or Andrew.Oliver@SothebysRealty.com.
Andrew Oliver is a Realtor with Harborside Sotheby’s International Realty
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty
Affiliates LLC. Each Office Is Independently Owned and Operated
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