Mortgage Outlook: September Rates to Ascend, Then Level Off

Holden Lewis
By Holden Lewis 
Edited by Mary Makarushka

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September mortgage rates forecast

Mortgage rates went up about an eighth of a percentage point in August, and I think they'll continue to rise modestly in the first half of September, then level out.

The roots of this prediction stretch all the way back to March. Rates went up sharply that month as COVID-19 vaccines rolled out and we were optimistic that the disease would soon get under control and the U.S. economy would boom. But mortgage rates fell from April through July, with peaks and valleys.

The rate on the 30-year fixed-rate mortgage bottomed out in early August at 2.77% APR. Then, it started rising, hitting 2.98% in the last full week of the month.

That's because, after the Federal Reserve’s July 27-28 meeting, Fed policymakers started talking about the timetable for reducing the amount of money the central bank adds to the banking system.

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Why rate watchers focus on the Fed timetable

The Fed has been buying $80 billion in government debt and $40 billion in mortgage debt each month. The money stimulates the economy by pushing down on interest rates.

Eventually, the Fed will end these purchases. In August, mortgage rates went up merely because Fed policymakers publicly discussed how and when the purchases will end.

My prediction assumes pundits will speculate about this timetable for the first three weeks of September and mortgage rates will trend upward. I think the Fed will announce the aforementioned timetable at its monetary policy meeting that concludes Sept. 22. That's when mortgage rates will level off.

What could push rates up, down or sideways

This forecast will be wrong if the toll from COVID-19 gets a lot worse, enfeebling the economy; in that case, mortgage rates might drop.

If I'm misreading the Fed and it doesn't announce a timetable Sept. 22, and instead delays an announcement until a later meeting, mortgage rates might fall afterward.

It's also possible that mortgage rates already completed their pre-Fed climb in August and will be steady through most of September.

Finally, instead of announcing a timetable for cutting back on debt purchases later in autumn, the Fed could actually start the process soon after the September meeting. Such a surprising announcement could result in an abrupt rise in mortgage rates.

What happened in August

At the beginning of August, I said rates were "more likely to edge down than to go up," and that the 30-year fixed would dip to 2.75% APR at some point. Wrong on both counts. I predicted that the monthly average on the 30-year mortgage would be between 2.8% and 2.9%, and it ended up at the upper end of that range.

The COVID-19 pandemic did worsen in much of the U.S. during August, as I expected. Absent other factors, an accelerating epidemic would push mortgage rates lower. But the Fed's talk about reducing debt purchases pressed rates upward and turned out to be a stronger opposing force.

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