Before 2020, no one would have thought interest rates moving up to 3% or going over 3% would be a bad thing. But no one really expected interest rates to be as low as 2.625% for a 30 year rate. Interest rates have been increasing over the past few weeks and we’ll see where they go this year!
Here is a chart showing the interest rates over the past few years and potential trends for this year.
Some of the predictions for this year have started to happen. Congress is looking at passing new stimulus plans and that can affect interest rates. Stimulus plans tend to lift the economy which is is good but can lead to inflation. Inflation is bad for mortgage rates. More government spending also means larger bond issuance. The government issues bonds to pay for assistance programs. Mortgage rates are tied to bond prices. So if the government floods the market with bonds, bond prices go down and interest rates usually go up.
Basically what all that means is that more government spending can lead to higher mortgage rates.
The good news is that the Fed plans to maintain their “easy money” policies for the near future. Mortgage rates have been in the high 2’s because the Fed has kept them artificially low. If the Fed states a timeline to reduce their bond purchases, we could see a repeat of 2013. In 2013 we saw the 30 year rate go from 3.35% on May 2nd to 4.46% on June 27th according to Freddie Mac. That is an increase of almost $200 per month on a $300,000 mortgage in 8 weeks!!
Mortgages are always looking forward. This means that when the Fed talks about tapering stimulus plans, the market reacts quickly and rates increase. The Fed has plans to keep it’s benchmark rate low until 2023 which will help keep mortgage rates low overall.
What does all this mean for those looking to buy a new home? Rates will still be low, maybe not as low as they were a month ago, but still very low from a historical standpoint. If you are ready to buy or refinance, it’s a great time to lock in your interest rate!
Leslie Vanderwerf, NMLS ID#335509, Cross Country Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website
