Despite the fact that mortgage rates remain at historically low levels, rates have ticked upward over the past few months, causing homebuyers in Palo Alto, Los Gatos and throughout Silicon Valley to pause. As Realtor.com senior economist, George Ratiu explains, “We have an entire generation of buyers coming of age in an era of rates under 4%.” What does this mean for 2020 mortgage rates?
According to MarketWatch, Freddie Mac anticipates that mortgage rates will continue to increase as we head into 2020. Says Sam Khater, Freddie Mac’s chief economist, “With Federal Reserve policy on cruise control and the economy continuing to grow at a steady pace, mortgage rates have stabilized as the market searches for direction. The risk of an economic downturn has receded and, combined with the very strong job market, it should lead to a slightly higher rate environment.”
Overall, mortgage interest rates are still offering those in search of a home considerable buying power. To put it into perspective: in January of this year, 30-year mortgages were about 4.38% and 15-year rates were 3.5%. By December 2019, these rates had declined to 3.5% and 2.75% respectively.
In November 2018, rates were at a 7-year high coming in at just below 5%, which impacted buyer’s purchasing power and subsequently resulted in rates falling to a 3-year low slightly below 4% within a year.
Though 5% seems elevated in today’s mortgage market, in decades past, rates were considerably higher. Mortgage interest rates ranged between 7% and 9% in the 1990s and in the 1980s, they peaked at a whopping 18%. But with today’s homebuyers having only seen rates in the 3% to 5% range, anything above 5% causes a collective shudder.
Explains CoreLogic chief economist Frank Nothaft, “One reason we’ve been able to sustain a high level of home prices in many high-cost markets is because mortgage rates have been cheap. If mortgage rates go from 3.5% to 5% or higher, given where prices are right now, markets that are already borderline unaffordable become much more so.”
Our current economy is also a major contributor to keeping home loan rates from climbing higher. According to MarketWatch, faced with economic weakness in recent years, central banks overseas have dropped interest rates to zero. The Federal Reserve forecasts the American economy has and will continue to improve, yet it has not gotten so auspicious that the central bank would consider raising rates. As a result, mortgage lenders would find it difficult to justify increasing home loan interest rates much higher.
Unless something unforeseen occurs in the global or U.S. economy, the coming year will most likely see home loan interest rates remaining fairly steady, with some minor fluctuations. That equates to homebuyers holding onto the purchasing power they’ve come to expect over the past seven years.