What’s Ahead for Mortgage Rates?

What’s ahead for mortgage rates? There will be movement, says Maryland Smith’s Clifford Rossi, the question is: How much?

Rossi says he expects the 30-year fixed-rate mortgage rate to remain low by historical standards, but not as low as it is now.

He says the 30-year mortgage rate is likely to rise to 3.5-3.6% by year-end, from the current 2.7%. The 15-year mortgage rate, he says, could also rise to 2.5-2.6%, from the current 2.1%.

“This projection is based largely on what happens to the yield curve between now and the end of the year – which is likely to steepen a bit more as fixed-income markets build inflationary expectations into their views,” says Rossi, Executive-in-Residence and Professor of the Practice at the University of Maryland’s Robert H. Smith School of Business. He recently shared some insights on rates with The Mortgage Reports. “The Fed has signaled a commitment at least for the time being to keep short-term rates very low so I could see a steeper yield curve ahead, which will affect the direction and level of mortgage rates.”

Of course, that could change, Rossi says. An unexpected slowdown in the economy or poor jobs figures could cause marginal movement, he says. But what economists are currently keeping their eyes on, Rossi says, are the early signs of inflation.

“Right now, there is a lot of attention being paid to inflation as it can lead to higher interest rates,” says Rossi. “The debate among economists at the moment is whether what we are starting to see in terms of inflation on a number of key inputs and consumer products is the start of a longer-term trend or merely a transitory effect of an economy poised to take off following the COVID-19 lockdowns.”

Prospective home buyers and refinancers may feel added pressure to lock down that home purchase or refinance rate, before rates rise dramatically, says Rossi. But time is still on their side, he says.

“My advice is to look at your budget and determine your need for housing over the next several years,” says Rossi. “If you are renting and see an opportunity to get into the housing market without overly stretching your finances, that seems like a reasonable thing to do.”