Why Home Loan Interest Rates Will Remain Low for the Future

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The interest rates on 30-year mortgages as of August 2017 were at the lowest point for the entire year, at a mere 3.86%. This is the lowest rates have been since November of 2016. Meanwhile, the rates on 15-year mortgages was only 3.16%, which are very popular with people who refinance.

Many experts expected that interest rates would be considerably higher by this time, but now, some of them believe that home loan rates will continue to be low in the future.

home loan interest rates

Be pragmatic by shopping home loan rates and closing cots online from mortgage lenders and bankers that you trust.

There has been concern over a reduction of inflation, which increased bond prices, leading to lower bond yields. Inflation has been running well under the 2% target set by the Fed for at least the last five years. Low inflation can help to keep home loan interest rates down as economic growth is reduced. Consumers often will delay large purchases because they think that prices will be the same or will even drop.

The signs are looking as if home mortgage rates will continue to stay quite low both this and next year. Here are some of the biggest reasons why:

#1 Economic Growth Is Not as High as Expected

Since Trump came into office, economic growth was expected to increase significantly. As of mid-2017, growth has increased but has not yet hit 3%. If growth stays well under 3%, it is likely that mortgage interest rates will continue to stay quite low.

Many consumers and financial experts want to see strong economic growth above 3%. But one of the common side effects of such strong economic growth is that it often increases mortgage interest rates.

If you can get a mortgage without a down-payment, consider moving on it. Do the math and talk to trusted financial advisers so you can make a commitment feeling good about it.

If economic growth is not as strong as people thought it would be, we think that mortgage interest rates will continue to stay low.

#2 Trump Tax Package Is Unknown and May Not Pass

Trump came into office with plans of significant tax reform, but as of this writing, there has not been substantial progress in getting a tax package through Congress.

A serious tax cut for many Americans would certainly help to stimulate the economy, but it is not known if or when this will happen. This is introducing uncertainty into the market, so this could cause mortgage interest rates to stay low for the foreseeable future.

#3 There Is a Lack of Supply of Houses

In many parts of the country, there continues to be a lack of supply of good housing stock. A shortage of houses prevents the housing market from really taking off. This typically means that housing growth is restrained and home loan interest rates stay low.

If there were a stronger supply of homes, it would be likely that more people would buy and this would cause interest rates to go up.

This year, the National Association of Realtors or NAR stated that sales of existing houses fell by more than 1%. This is a seasonally adjusted rate of 5.45 million. Sales are 2% higher than a year ago, but the signs are that purchases are slowing as there are not enough houses on the market.

#4 Housing Prices Are Rising

The number of houses on the market is not as high as it could be, and this causes home prices to go up. As wages are not usually keeping pace with the rise in home values, there are fewer people buying homes. As fewer people buy homes, interest rates tend to stay the same or fall.

If the stock of homes starts to increase, we anticipate that interest rates could go up, but we have not seen much evidence that this is happening.

#5 Mortgage Credit Is Tighter

After the financial crash of 2008, it is not as easy to get a mortgage as it used to be. Today, all lenders are required to carefully document the incomes of their borrowers. It is no longer possible to get a home loan with no income documentation or credit check.

Because mortgage credit is harder to get, the housing market is not getting as hot as some people thought it would after Trump became president.

Takeaways on Home Mortgage Rates

The housing and finance markets are not as strong in 2017 as many would have thought. With Trump in office, many thought that the real estate market would really take off, which would lead to an increase in home loan rates. It is true that mortgage rates did increase at the start of the year. But as it has become clearer that the Trump administration will have difficulty getting economic packages through congress, the rates have started to fall again.

If you are in the market for a new home this year or next year, we think there is a good chance that mortgage rates will stay the same or even fall. Even after the Fed raised its key home loan interest rates three times in the last 12 months, rates still are dropping. While this does not always mean the best new for the general economy, it definitely helps people trying to buy their first home.

mortgage rates

NEWS: According to a recent report last week by Freddie Mac, the fixed 30-year mortgage rates average bumped up to 3.85% with an average 0.5 point. It was 3.83% a week ago and 3.42% a year ago. The fixed 15-year mortgage rates average rose to 3.15% with an average 0.5 point. It was 3.13% a week ago and 2.72% a year ago. The five-year hybrid ARM rates average fell to 3.18% with an average 0.4 point. It was 3.20% a week ago and 2.80% a year ago. Learn more about Freddie Mac loans.


About Bryan Dornan

Bryan Dornan is a Financial Journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has worked in the mortgage industry for over 20 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Medium and other national publications. Find him on Twitter and Muckrack.