December 1, 2020


If you’re projecting to purchase a house or pay down your existing one over the next 12 months, here’s an eye-opening forecast for you to consider, not only should rock-low interest levels persist until 2021, however, there’s a high chance that the benchmark rate could plunge to 2,5% or even lower.

According to the weekly survey of large lenders by Bankrate, the average 30-year fixed mortgage rate ended June 2020 at 3.42 percent, a record low. In fact, the instability caused by the coronavirus pandemic has created confusion regarding where concentrations are to go by mid-2021.

A few other rate watchers say that in the coming year, rates could plummet below 3 percent, smashing the current record lows. Others predict it to edge over 3.5 percent again. The wild card, of course, is how the US economy emerges from the COVID-19 pandemic, an unparalleled global crisis over the past century at least.

Here’s how a lot of professionals anticipate mortgage rates will move during the year ahead:

According to Lynn Reaser, chief statistician at Point Loma Nazarene University in San Diego, mortgage prices are likely to reflect the trajectory of the economy and coronavirus pandemic. A strong rebound would mean rising prices. “Hypothetical rates are likely to rise from one-quarter to one-half percentage point by mid-2021, bringing them to 3.5 percent to 3.75 percent, particularly as a vaccine is available, causing the economic recovery to pick up momentum,” she states.

There is no truth, of course, that the researchers can discover a vaccine in the coming year. And a current phase of coronavirus infections could delay the economy even more and drive even lower mortgage prices. “Values could sink below 3 percent if the economy is locked up next spring with widespread new contaminations or a new virus,” says Reaser. “But that is just around 20 percent possible.”

William Emmons, nevertheless, is less convinced of a rapid economic rebound. Emmons is the chief economist at the Federal Reserve Bank of St. Louis Centre for Household Financial Stability. “Stock markets are very bullish right now, and you might see dropping prices,” he says, noting that the outlook does not reflect the Fed’s official opinion.

Aside from the growth trend, Emmons is looking at the gap between 30-year mortgage rates and 10-year Treasury yields. Although those two numbers travel usually in lockstep, the gap separating the two has expanded in recent months.

Emmons expects the unusual divide between the 10-year Treasury and the 30-year mortgage to narrow in the coming year. A return to normal there could cut 50 basis points from mortgage rates, while a couple of other technical factors could knock an extra 50 basis points from rates. “I could see rates 100 basis points down in a year’s time,” Emmons says.


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