Economists expect rates to stay close to current level over next few years.
As 2019 nears its close, experts across the housing industry are doing what they do at this time every year: Looking ahead.
Looking back at this time last year, however, many economic predictions missed the bullseye, and some missed the target altogether.
For example, CoreLogic was projecting 30-year fixed mortgage rate to average about 5.25% by this December, the highest in a decade. The 30-year fixed-rate mortgage is currently averaging 3.66%, per Freddie Mac’s most recent report.
CoreLogic wasn’t alone in this theory, as Capital Economics (and many others) predicted in the fall of 2018 that interest rates would climb this year.
That obviously didn’t happen.
And now, economists at Capital Economics are looking at 2020 through a different lens. The economic research consultancy is anticipating that 2019’s low rates may hang around for a few years, according to its latest report.
“We now expect mortgage interest rates to stay close to their current level over the next couple of years,” the report stated. “That will give some support to housing demand but, as was the case this year, offsetting factors such as modest economic growth, tightening credit conditions and a lack of inventory will all weigh on home-buying sentiment. That argues against a strong rise in mortgage applications for home purchase.”
The report projects the 10-year Treasury yield will stay close to 2% over the next couple of years, while the 30-year mortgage rate will stay close to 4%.
Capital Economics had previously forecasted a rise of 4.5% by the end of 2020, but is now lowering that projection by half a percentage point.
“That will give some additional support to housing demand, but we doubt it means mortgage applications for home purchase are set for a significant rise,” the report said. “After all, compared to refinancing demand, home purchase demand is less sensitive to movements in interest rates. Admittedly, changes in rates can impact the timing of home purchases.”
In its latest report, Capital Economics reiterated its previous claims that single-family housing starts may see improvement in the following year.
“Combined with tight inventory, low mortgage rates will help single-family housing starts make further progress next year,” the report said. “But the factors that held back overall housing demand this year will continue to do so next year, preventing a large rise in mortgage applications for home purchase and existing home sales.”
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