With the Federal Reserve poised to raise short-term interest rates this year, the questions for prospective home buyers are when, if and by how much mortgage interest rates will follow.
While real estate and mortgage experts foresee rates rising at some point in 2015, most don’t expect a dramatic increase — not even as high as they were last year. They point out that rates, still hovering at historic lows, are influenced by other factors, such as the economy and inflation.
Still, for prospective home buyers, a potential boost in mortgage rates may be an impetus for them to move sooner rather than later.
Last week, average long-term mortgage rates rose, yet they remained near historically low levels. Mortgage company Freddie Mac says the nationwide average for a 30-year, fixed-rate mortgage rose to 3.86 percent from 3.75 percent last week.
In the summer or fall, there is a likelihood that rates will be higher than now if the economy continues to grow at a reasonable pace, said Keith Gumbinger, vice president of HSH.com, a mortgage information website.
“We’re expecting mortgage rates will drift higher in 2015. The high-water mark was 4.63 in 2014, and we’re well below that now,” Gumbinger said, citing HSH.com’s own survey data.
It “will probably be difficult to get past the peak of 2014” this year, he said.
Gumbinger said there is not as strong a correlation as one might think between Fed rate increases and a rise in mortgage rates. As the Fed moves interest rates, a growing economy will usually lift price levels, he said. “Rising price levels will usually lift long-term mortgage rates,” he said.
It’s likely that if longer term interest rates move up, they will do so before the Fed raises interest rates, Gumbinger said.
Steve Hoogerhyde, executive vice president and chief lending officer at Clifton Savings Bank, said that even if rates were to rise half a percentage point, they would still be at historically low levels.
“We’ve all been hearing predictions for years that rates will go up. At some point, the rates will go up. It’s a cyclical industry,” he said.
“Now is the ideal time and it will be for the next couple of months, in my opinion” for prospective home buyers, said Ken Goffstein, senior loan officer in the Oradell, N.J., branch of Fairway Independent Mortgage Corp.
He expects rates to climb this year, but like Gumbinger, not as high as last year’s peak.
Current low rates are helping prospective buyers and those looking to refinance mortgages.
“Our refinances now are more than 50 percent of our business, and we normally don’t do as high,” said Douglas Rotella, executive vice president of HomeBridge Financial Services, based in Iselin, N.J.
In the past, typically, people would jump into the market when rates started rising, said Maria Rini, an agent with Re/Max in Oradell, N.J. In the past month, first-time buyers are “coming out of the woodwork,” she said, citing the Federal Housing Administration’s move to lower annual mortgage insurance premiums. “Part of that is also fear rates will go up.”
Low inventory, a general improvement in the economic outlook and low interest rates have been a draw for prospective buyers, Rini said.
“We are seeing a very, very robust winter market already, and that we would not have predicted,” Rini said.
Low mortgage rates are important not just for first-time buyers, but also for sellers looking to put homes on the market at a time when motivated buyers are looking, said Barbara Ostroth, an agent with Coldwell Banker Residential in Oradell.
And for prospective buyers, lower interest rates are motivational, and gives them a little more purchasing power, Ostroth said. “They’re definitely getting off the fence and getting going sooner,” she said.
“Inventory levels are definitely something that would curtail sales,” Gumbinger said. “You may say, ‘Sure it’s a great time to get out there.’ Affordability is still pretty strong, but if there’s nothing to buy, there’s nothing to buy.”
This year, economists expect home sales will get a boost from lower mortgage rates, healthy hiring, and lower down-payment requirements from mortgage giants Fannie Mae and Freddie Mac.
Gumbinger found a number of indicators pointing to a positive market for this year.
“The economy is growing, affordability is still very strong, low mortgage rates are still in place, people continue to build their financial portfolios — there’s reason for optimism,” Gumbinger said.
Until recently, low interest rates had not been enough to spark the market during the slow recovery, Rini said.
“Part of that is because the economy has looked so gloomy,” she said. “Now, that the economy is not as gloomy, interest rates are having more of an impact.”
Goffstein agreed.
“There have been people on the sideline because of the whole economic situation,” he said. “But now they’re going to come out, especially in the spring.”
This article contains material from The Associated Press.
