Outlook For Home-Loan Interest Rates This Fall—Up, Up And Away

The economy and job formations may be on a roll nationwide, but if you are planning to buy a home this autumn, better hurry.

The outlook for mortgage rates are up, up, and away.

That’s the latest forecast from Freddie Mac’s Primary Mortgage Market Survey which reported that home-loan rates jumped over the past week to a level not seen in over a month.

Sam Khater, Freddie Mac’s chief economist, said the one-two punch of strong job and consumer credit growth drove mortgage rates up in mid-September to their highest mark since early August.

“Mortgage rates are currently 0.82% higher than a year ago, which is the biggest year-over-year increase since May of 2014,” Khater said.

Benchmark 30-year fixed home loans averaged 4.6% nationwide for the week ending September 13th, up from an average of 4.54% a week earlier. A year ago at this time, 30-year fixed loans averaged 3.78%.

Fifteen-year fixed-rate mortgages averaged 4.06% across the nation, up from 3.99% a week earlier. A year ago at this time, 15-year fixed mortgages averaged 3.08%.

On September 16th Chicago-area lenders were charging a range of 4.61% to 4.876% for 30-year fixed rate home loans, and 3.875% to 4.25% on 15-year fixed mortgages, according to rateSeeker.com.

Looking ahead, annualized comparisons for home-loan applications may look weaker than they appear, Khater said. But that’s primarily because of the large spread between mortgage rates now and last September, which was when they reached their low for the year.

“Overall, this spectacular stretch of solid job gains and low unemployment should help keep home-buyer interest elevated,” Khater predicted. “However, mortgage rates will likely also move up, as the Federal Reserve Board considers short-term rate hikes this month and at future meetings.”

On June 14th, the Fed raised its federal-funds rate a quarter of 1 percentage point for the second time this year to a range of 1.75% to 2%. It was the seventh rate hike since 2015, and it followed an increase in March of this year.

The Fed plans to raise interest rates two more times in 2018, three times in 2019 and once in 2020, ultimately pushing its benchmark federal-funds rate to a range of 3.25% and 3.5%.

Therefore, home buyers who sit on the fence and wait another 18 months to two years could have to pay a 6.5% to 7% mortgage interest rate by 2020, experts predict.

However, some economists worry that the Fed’s aggressive tightening of monetary conditions could spark a sharp slowdown in growth next year. That could force the Fed into reversing course and begin cutting interest rates in 2020. Mortgage-rate history

Mortgage rates hit a historical rock bottom on November 21, 2012, when the 30-year fixed mortgage average hit 3.31%, Freddie Mac reported.

More than 18 years ago—in August of 1999—when many of today’s Millennial borrowers were in grammar school, lenders were quoting 8.15% on a 30-year fixed mortgage.

However, to really appreciate today’s relatively low interest rates, housing experts say home buyers need only to look at what banks and mortgage lenders where charging more than three decades ago in the early 1980s.

According to Freddie Mac, benchmark 30-year mortgage rates peaked at a whopping 18.45% in October of 1981 during the Great Recession of the 1980s. Rates fell below 10% in April of 1986, and then bounced in the 9%-to-10% range during the balance of the 1980s.

Archives of the now-defunct Federal Housing Finance Board show long-term mortgage rates were relatively affordable five decades ago at 5.81% to 5.94% between 1963 and 1965.

In 1966 and 1967, borrowers paid an average of 6.3% to 6.4% In the 1960s, rates last dipped below 6.5% in January of 1968, when the national average hit 6.41%. Between 1971 and 1977, the now-defunct Illinois Usury Law held rates in the 7.6%-to-9% range.

For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.