Today’s mortgage rates remain near three-year lows, but everyone wants to know where they’re headed in the future. According to Realtor.com Chief Economist Jonathan Smoke, global economic concerns—most recently from the Brexit fallout—have kept mortgage rates low as investors seek refuge in dollar-denominated assets, U.S. bonds and U.S. mortgage–backed securities. In addition, the nation’s slowdown in economic growth as a result of lower energy prices and lower exports has delayed the Federal Reserve’s previous plans to raise interest rates early and often this year. These two forces haven provided lower rates this summer and have kept them low. Where rates go from here depends on new global and U.S. economic data regarding economic growth.
Here, a quick forecast from Realtor.com’s Smoke:
- Mortgage rates fell substantially in June as a weak employment report for May took a Fed rate decision off the table for June, and then the U.K.’s vote to secede from the European Union diverted foreign investor money into U.S. treasuries. But, in July, rates remained relatively flat, inching up slightly as more positive economic data emerges and the Fed resumes its discussions about rate increases in September or later this year.
- August likely will look much like July, so these historically low rates should remain until the end of the summer peak in sales, or at least long enough for any summer buyers or refinancing procrastinators to lock in rates.
- September could herald more upward movement, with an employment report due in August on the Friday before Labor Day and then with the Fed meeting Sept. 20-21.
- While the Fed is not likely to change interest rate policy in early August, when its board of governors meets, it could make comments that relay a stronger likelihood of a September move. If that happens, mortgage rates could begin a slow ascent in August, as the mortgage market often anticipates the Fed’s official policy changes.
- Even with a policy change in September, rates likely won’t move enough to boost the average 30-year conforming rate back above 4 percent by year’s end. However, the next upward ticks likely will come in response to economic growth and more inflationary pressures than seen so far in the recovery.
- Going forward, there should be less concern about global recession and uncertainty compared with the past four years. That could mean that once the 30-year moves above 4 percent, it will keep heading up and will be far more likely to keep going up to 4.5 percent than back down to 3.5 percent. And then 5.5 percent could be within range in two to three years.
