Your Vienna Real Estate Agent: What Will Happen in 2015?

Let me look into my crystal ball……. “Will Mortgage Rates Rise in 2015?”

The crystal balls prediction reads……… “Reply hazy, try again later”

Ok, you got me! Its not a crystal ball, but my magic 8 ball and it seems to be in line with the consensus of the top economists, Federal Reserve Presidents, and mortgage lenders on the subject of mortgage rates. They are evenly split on whether mortgage rates will rise or not.

Before we discus the future, let’s first briefly clarify what mechanisms actually affect mortgage rates. Interest rates for 30-year fixed-rate mortgages are generally tied to 10-year treasury bonds and as the yields rise and fall so do these mortgage rates, though slightly delayed. Adjustable rate mortgages (ARM) however, are generally tied to treasury bonds, LIBOR, and/or the overnight Federal Funds Rate, which the fed has held close to 0% since December 2008. Let me point out, I said “generally tied”, so please keep in mind that initial mortgage interest rates do not move in lock step with any of these indices. Therefore, you can see why mortgage rates can be a moving target and difficult to predict precisely. (I am referring to initial rates; ARM rate re-adjustments are directly tied to an index, but please refer to your current loan documents for the specific benchmark)

Predictions for 2015 mortgage interests rates are varied and mainly stem from the fact that experts forecasted rising rates in 2014 and they were wrong! This year most are a bit more cautious with the highest expectations of increase nearing 5%, like the Chief Economist for Freddie Mac. On the other end of the spectrum is Dan Green with MortgageReports.com believes rates will fall slightly by the end of 2015 to 3.80% average. My prediction is more of a middle road but certainly much closer to Dan’s forecast with rates remaining the same around 4% average fixed rate as well as ARMS around 3.0% and here is why.

—U.S Treasuries – Yes, the FED has ended QE3 and their purchase of U.S. Treasury bonds is coming to an end. This in itself should push up Treasury Yields and in turn rates; however, the European Central Bank is now implementing their own QE. They will not be buying U.S. bonds, but they will be driving down their own yields, which will cause the higher yielding U.S. Treasury’s to be more attractive to global investors. These investors will pick up the slack of purchasing U.S. Treasury bonds and keep the rates low.

—Federal Funds Rate – The Fed has indicated that they will begin to increase the rate by June of this year but only by roughly .25%. When this happens, short term ARM’s will also see a slight rise in rates; However, I do not expect the Fed to increase the Federal Funds Rate until late 2015, not mid 2015. The Fed has already pulled back once by indicating that the first increase would be smaller then originally forecasted. With the current U.S. economy expectations of modest GDP growth and minimal inflation in 2015, I don’t think the can raise the rate yet. The Federal Reserve needs some inflation, because deflation is a major risk! (Federal Funds Rate directly influence short term rates like credit cards, car loans, and unsecured loans)

There are many other economic factors at play that can change at any moment, but the current road seems to be point towards rates holding a steady pattern. The time to purchase a home is the time that is best for your individual situation. Currently home buyers in Northern VA have two things in their favor, historically low rates and a balanced real estate market. Here is a good article to help determine if a fixed rate mortgage or ARM is best for your situation. Is it the right time for you to buy a home? Please call or email me for a free, no obligation consultation!

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