It’s time to dust off our crystal ball and take a peek into the future, specifically look at the latest 2019 mortgage interest rate predictions. Mortgage rates hit their low point back in 2012 and have been on a gradual incline up until earlier this year when rates began to trickle lower. But where might rates be when we enter 2019 and where could we be one year ago today?
Mortgage lenders set their interest rates each day based upon a predetermined index. For an adjustable rate mortgage, the index will be a specific bond or Treasury. A common index today is called the 1-year Constant Maturity Treasury, or CMT. There are other CMTs but the 1-year is the most common. When the CMT moves up in price, lenders will take the price of that index and add a margin to it for a variable rate for the day.
For a fixed rate loan, lenders set their rates based upon the performance of a specific mortgage bond. For a conventional Fannie Mae loan, the index is the FNMA 30-yr 4.5 coupon and for a Freddie Mac loan, it’s the FHLC 30-yr 4.5. Mortgage rates follow lock-step with these bonds and when investors are looking for a flight to safety and avoid perceived or expected volatility in the stock market, they can buy these bonds for security.
Note: Home loan rates move in the same direction regardless of the loan program. Example – if the 30 year fixed rate on an FHA loan moves .25% higher today, other programs like Conventional, VA, or Jumbo loans will likely follow suit.
These bonds, just like any other type of bond, won’t return very much compared to a speculative stock but that’s not the allure. If an investor sees a string of economic reports that suggest an improving economy more money will move from bonds to stocks. When investors see or expect the opposite the reverse will happen, and stocks will be sold off for the safety of bonds.
That said, what can the current economic state tell us about what might happen in the future? Investors look for trends and one report that is closely watched is the Unemployment Report. On the first business Friday of each month, the Bureau of Labor Statistics releases the Unemployment Report that carries a host of data. The unemployment rate for October came at 3.7%, which matched the rate for September. This rate was last seen back in 1969. More importantly, it’s the number of new jobs that were created with less emphasis on the actual rate.
In October, there were 250,000 new jobs created, beating forecasts by a wide margin while at the same time workers saw a healthy 3.1% increase in wage gains on a year-over-year basis. These are strong numbers but they’re not an anomaly. Job and wage growth have shown no signs of fading. This can tell us a little bit about what we might see going into 2019.
If these trends hold, the 2019 economy should be a healthy one. The Federal Reserve has been monitoring multiple sets of data to see when and if rate increases are warranted. At the beginning of this year, the Fed announced there would probably be four rate increases in 2018. The Fed doesn’t directly affect your everyday 30-year mortgage rate, but there is indeed a secondary effect. When the Fed raises rates, it actually raises the Federal Funds rate.
The Fed Funds rate is the rate banks can charge one another for short-term lending to meet daily reserve requirements. When the economy is showing strength, the Fed can raise this rate to keep a lid on any inflation. Higher borrowing costs can dampen consumer borrowing but even though we’ve had three such increases this year, the economy doesn’t seem to pay very much attention.
2019 Mortgage Rate Forecast
Markets expect another rate increase at the next FOMC round of meetings in December and even though investors see this rate bump coming it hasn’t changed their investment strategies. That said, what will mortgage rates look like in the future?
Most experts agree we can expect mortgage rates to continue the upward trend and increase in 2019. The economy hasn’t shown any recent signs of slowing and investors should continue to pour more money into stocks and pull funds from bonds. Until the economy starts to stumble in certain sectors, we can expect rates to move upward next year, the key is to what degree. Most industry professional predict another ½ to 1 percent increase through 2019, this would put the average 30 year fixed conventional rate near 5.5%-6%
While rates have pushed higher this year, there have been no wild mortgage rate swings from one day to the next. It’s been on a fairly even keel, which is exactly what the Fed, and investors, like to see.
Please connect with us today to learn more by calling 800-871-2636 or just submit the Request Contact form on this page.