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Mortgage Interest Rates Forecast

Jan. 24, 2020
Mortgage Rates, Mortgages
Mortgage Interest Rates Forecast-story
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January mortgage rates forecast

Mortgage rates were remarkably steady at the end of 2019. According to NerdWallet’s daily rate survey, the 30-year fixed-rate mortgage averaged 3.99% APR in December and in November, too. The 30-year fixed began 2020 slightly below where it ended in 2019. It may drop even more.

Why: Long-term interest rates often fall during times of world instability. The rapid escalation of hostilities between Iran and the United States is the embodiment of instability. Investors typically respond to global turmoil by buying safe instruments, including mortgage-backed securities that ultimately are guaranteed by the federal government. The buying spree causes bond yields and mortgage rates to fall.

In other developments, the Federal Reserve hinted that it’s inclined to leave short-term rates alone this year. That may be interpreted as a signal that the Fed believed interest rates, including those on mortgages, wouldn’t move much in 2020.

However, unexpected global events can disrupt forecasts. The Fed delivered its rate outlook in early December, three weeks before hostilities with Iran boiled over.

» MORE: How the Fed affects mortgage rates

Nerdy tip: We don’t know how long the crisis in the Middle East will last, or what will happen. Yes, rates tend to drop in reaction to global instability, but that’s a tendency, not a certainty. During a time of conflict, it’s prudent to lock a mortgage rate when you’re quoted an acceptable one, rather than gambling for rates to drop even further. Keep in mind that current mortgage rates are low by historical standards.

» MORE: How are mortgage rates determined?

What are the current mortgage rates today?

On Friday, Jan. 24, 2020, the average rate on a 30-year fixed-rate mortgage fell five basis points to 3.8%, the average rate on the 15-year fixed mortgage dropped two basis points to 3.39%, and the average rate on the 5/1 ARM fell two basis points to 4.09%, according to a NerdWallet survey of mortgage rates published daily by national lenders. A basis point is one one-hundredth of one percent. Rates are expressed as annual percentage rate, or APR. The average rate on the 30-year fixed is nine basis points lower than one week ago.

» MORE: Compare top mortgage lenders

Mortgage rates this week

Mortgage rates continued to fall this week. At the end of the week of Jan. 20, the 30-year fixed-rate mortgage averaged 3.8% APR, according to NerdWallet’s daily survey of mortgage rates from national lenders. That was its lowest level since November 2016.

With mortgage rates falling this low, some homeowners may find that they could benefit from refinancing. They can start by consulting a mortgage refinancing calculator, then brushing up on how and why to refinance.

The low mortgage rates deliver mixed news to home buyers. On the one hand, the low rates increase affordability: As interest rates fall, you can borrow more money for the same monthly payment. On the other hand, there simply aren’t enough homes for sale. Buyers don’t have many homes to choose from.

The reason: Home resales were strong in December, according to this week’s Existing-Home Sales report from the National Association of Realtors. But at the end of the month, just 1.4 million homes were on the market for resale. That’s the lowest level of inventory in at least three decades, according to housing blogger Bill McBride.

The housing shortage has had a predictable effect on prices. NAR reports that the median resale price was $274,500 in December, a 7.8% increase over the median price the previous December.

Thus the mixed news: Low mortgage rates make homes more affordable — if you can find the right home for sale.

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