Mortgage Rates Will Head Higher this Year and in 2015

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Mortgage rates are higher this week over last as 10 year U.S. Treasury yields declined. 30 year conforming mortgage rates today are averaging 4.50 percent, a decline from last week's average 30 year mortgage rate of 4.54 percent. Mortgage rates moved higher throughout 2013 and will continue to move higher in 2014 and 2015.

The lowest point for average 30 year rates in 2013 was back in the first week of January when rates hit a low of 3.34 percent. The lowest point ever for 30 year rates was the week of November 21, 2012, when rates hit a low of 3.21 percent. Rates moved higher from the all-time lows set late in 2012 but are still low, historically speaking.



Current mortgage rates will continue to move higher over the next two years but take a look back at where rates have been.

30 Year Conforming Mortgage Rates Historical Perspective


Current 30 year rates have moved 1.25 percent higher from the record lows but when you compare current rates to the record highs, these rates are still incredibly low. Back in the early 1980's when inflation was in the double digits, 30 year mortgage rates were also in the double digits.

Looking back for historical perspective, the highest point ever recorded for 30 year rates in Freddie Mac's Primary Mortgage Market Survey was at an unbelievable high of 18.45 percent in October 1981. The monthly payments for a home loan with an 18.45 percent rate is much higher than the same loan amount at the current rate of 4.50 percent.

Using a mortgage calculator you can see the difference in this example:

  • A $500,000 loan for 30 years with a rate of 18.45 percent has a monthly payment of $7,719.27

  • A $500,000 loan for 30 years with a rate of 4.50 percent has a monthly payment of $2,533.43


In this example the monthly payment difference an astonishing $5,185.84.

Homes Are Less Affordable When Home Prices and Mortgage Rates Increase


After the housing bust and when mortgage rates hit record lows, home affordability was at its highest point ever according to the National Association of Realtors. This meant you could buy more home than you ever could before. Home affordability has since declined from the highs in 2012 and will continue to decline in the coming years.

As home prices increase and mortgage rates increase, you'll be able to buy less with your money. Therefore you should consider buying sooner than later. Freddie Mac has a Homebuyer Affordability tool you can use to see how higher mortgage rates and home prices affect homebuyer affordability.

Using the tool to forecast mortgage rates and home prices between Q3 2013 and Q3 2014, you can see the Affordability Index declining, which means for the same money, you'll be getting less and less.

Direction of Mortgage Rates in 2014


Mortgage interest rates are moving higher but rates won't be moving that high. Hopefully we will never see double-digit inflation and double-digit mortgage rates ever again. There are different forecasts for where average mortgage rates will be this year and next but the consensus is that rates are moving higher.

The Mortgage Bankers Association has forecasted average 30 year conforming mortgage rates increasing to 4.70 percent in the first quarter of 2014. By the end of 2014, the MBA has forecasted average 30 year rates to move above 5.00 percent to 5.10 percent.

We believe average 30 year conforming rates will move somewhat higher than the MBA forecast. By the summer of 2014, average 30 year rates will be near 5.00 percent and by the end of 2014, average 30 year rates will be around 5.30 percent. We believe rates will be higher because economic growth will be stronger and the unemployment rate will be lower than expected.

Average Mortgage Rates in 2015


Rates are expected to continue to move higher in 2015 but the year over year increase is expected to be even lower than the 2013/2014 increase. The MBA has forecasted for average 30 year rates to increase to 5.20 percent in the second quarter of 2015 and move to 5.30 percent by the end of 2015.

If the MBA's forecast is correct, average 30 year rates are expected to only move up 0.80 percent over the next two years. This is not much of an increase at all and 30 year rates around 5.30 are still low, historically. We believe by the summer of 2015 average 30 year rates will be around 5.50 percent and by the end of 2015 rates will be around 6.00 percent. 30 year rates at 6.00 percent are still low.

Mortgage Rates Decline This Week but Will Head Higher This year and in 2015Average Mortgage Rates January 08, 2014


15 year mortgage rates today are averaging 3.51 percent, a decline from last week's average 15 year mortgage rate of 3.57 percent. The average 15 year rate is at 3.51 percent but there are many lenders quoting 15 year rates below the average.

Right now in our database for the state of California we have lenders quoting 15 year refinance rates as low as 2.875 percent and 3.00 percent with mortgage points. The same lenders are also quoting 15 year refinance rates in other states as low.

30 year jumbo mortgage rates today are averaging 4.65 percent, higher than last week's average 30 year jumbo mortgage rate of 4.63 percent. Currently the lowest 30 year jumbo refinance rates in our database right now are quoted at 4.25 percent with no mortgage points for the state of Maryland.

15 year jumbo mortgage rates currently are averaging 3.88 percent, a slight decline from the previous week's average 15 year jumbo rate of 3.89 percent. Checking our database the lowest quoted 15 year jumbo refinancing rates today in the state of Oregon are at 3.375 percent with 2 points. The lowest 15 year refi rates without points are quoted at 3.75 percent.

Current 5/1 adjustable mortgage rates on conforming loans are at 3.67 percent, down from last week's average 5/1 adjustable mortgage rate of 3.69 percent. The best 5 year adjustable refinance rates quoted on our rate tables are much lower than the average. Checking on rates in South Carolina, we have lenders quoting 5 year rates at 2.25 percent with 2 points and at 2.75 percent with no points.

5 year jumbo adjustable mortgage rates are higher this week averaging 3.02 percent, up from last week's average 5 year conforming rate of 3.00 percent. The lowest 5 year adjustable jumbo refi rates in our database for the state of Florida are currently at 2.50 percent with 2 points and at 2.875 percent with no points.
 
Author: Brian McKay
January 8th, 2014